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Question 1

The two components of risk in a commodities futures portfolio are:

Options :

A : Changes in the convenience yield and storage costs

B : Changes in spot prices and carrying costs, also called commodity lease rates

C : Changes in interest rates and spot prices

D : The risk from change in basis and interest rates

Answer: B

Question 2

What is the price of a treasury bill with $100 face maturing in 90 days and yielding 5%?

Options :

A : $95.24

B : $95.00

C : $98.78

D : $101.23

Answer: C

Question 3

Which of the following portfolios would require rebalancing for delta hedging at a greater frequency in order to maintain delta neutrality?

Options :

A : A portfolio with a low delta and high vega

B : A portfolio with a high gamma

C : A portfolio with a high delta and low gamma

D : A portfolio with a low gamma

Answer: B

Question 4

Callable corporate bonds:

Options :

A : generally yield less than non-callable bonds due to the call feature

B : need to be priced lower than non-callable bonds to make them attractive to investors

C : are more convex than their non-callable counterparts

D : are generally called when their prices have fallen below the issuance price

Answer: B

Question 5

A bank sells an interest rate swap to its client, with the client agreeing to pay the bank a fixed 4% and receive 3 month LIBOR + 100 basis points, payments due every quarter. After quarter 1, the 3 month LIBOR is 2% pa. Which of the following payments will happen in respect of this swap, assuming the contract notional is $100m, and the rate convention is 30/360.

Options :

A : Bank pays customer $1,000,000 and customer pays the bank $750,000

B : Bank pays customer $250,000

C : Customer pays bank $250,000

D : Bank pays customer $1,000,000

Answer: C