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Question 1

Two portfolios with identical Sharpe ratios will have

Options :

A : identical expected risk

B : identical expected risk and returns

C : returns identically proportionate to risk

D : identical expected returns

Answer: C

Question 2

An early exercise of an American call option is advisable whenever the option is deep in the money and delta approaches 1

Options :

A :

An early exercise of an American call option is advisable whenever the option is deep in the money and delta approaches 1

B :

An early exercise of an American call option may be justified if an extraordinarily large dividend payment is imminent

C :

An early exercise of an American call option is never a good idea as an option is always worth more alive than when it is dead

D : An early exercise of an American option, if ever to be done, should be done immediately after an exdividend date

Answer: B

Question 3

The gamma of a call option is 0.08. What is the gamma of the corresponding put option?

Options :

A : -0.08

B : 0.92

C : 0.08

D : -0.92

Answer: C

Question 4

The price of an interest rate cap is determined by:

I. The period to which the cap relates

II. Volatility of the underlying interest rate

III. The exercise or the strike rate

IV. The risk free rate

Options :

A :

I, II, III and IV

B : I, II and III

C : II, III and IV

D : I, II and IV

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