Question 1

Which of the following statements is true:

I. The standard deviation of a short position is the same as the standard deviation of a long position

II. The expected return of a short position is the same as that a long position in the same asset

III. If two assets are perfectly positively correlated, then a short position in one and a long position in the

other are negatively correlated IV. If we increase the weight of an asset in a portfolio, its correlation with other assets in the portfolio scales up proportionately

Options :

A : I, II, III and IV

B : II and IV

C : I and III

D : II, III and IV

Answer: C

Question 2

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 3

A currency with a lower interest rate will trade:

Options :

A : at a forward discount

B : at a forward premium

C : at the same prices for forwards as for the spots

D : cannot be determined solely on the basis of interest rates

Answer: B

Question 4

A fund manager buys a gold futures contract at $1000 per troy ounce, each contract being worth 100 ounces of gold. Initial margin is $5,000 per contract, and the exchange requires a maintenance margin to be maintained at $4,000 per contract. Prices fall the next day to $980. What is the margin call the fund manager faces in respect of daily variation margin ?

Options :

A : $1000

B : $2000

C : $7000

D : $0

Answer: B

Question 5

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

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