Question 1

Immunization is the process of o setting the e ects of interest-rate changes on the value of assets and liabilities. Coverage of liabilities with signi cant convexity may be more e ectively matched with a:

Options :

A : callable bond portfolio, especially in a declining-rate environment.

B : bullet portfolio with little convexity.

C : barbell portfolio with positive convexity.

D : mortgage portfolio, especially in a highly volatile rate environment.

Answer: C

Question 2

Given the spot rates for the 6-month and 1-year maturing bond, the 6-month forward rate 6 months from now is closest to:

Options :

A : 7.28%.

B : 6.54%.

C : 5.86%.

D : 6.04%.

Answer: B

Question 3

Robert Patterson, an options trader, believes that the return on options trading is higher on Mondays than on other days. In order to test his theory, he formulates a null hypothesis.Which of the following would be an appropriate null hypothesis? Returns on Mondays are:

Options :

A : less than returns on other days.

B : not less than returns on other days.

C : not greater than returns on other days.

D : greater than returns on other days.

Answer: C

Question 4

A fund holds $10 million nominal of the XYZ 5.5% 30-year bond. It enters into a one month dollar roll with arepo dealer bank in which it sells the security at a price of 100-08 and buys it back at a forward price of par.Assuming that the security experiences a 2% paydown (scheduled principal plus prepayments) during the term ofthe trade, estimate the value of the drop.

Options :

A : $25,000

B : $225,000

C : $200,000

D : $800,000

Answer: B

Question 5

The investment banking division of a large German bank recently engaged a new client whose business is in direct competition with an existing client of the commercial banking division of the bank. A manager in the commercial banking division is concerned about conflicts of interest that may arise from providing both clients with a high level of customer service. What is of greatest concern to the manager regarding this situation?

Options :

A : The investment banking division pressuring commercial bankers to confirm material nonpublic information

B : The investment banking division pressuring commercial bankers to open a banking relationship with the new client

C : The investment banking division pressuring the banks brokers to buy certain securities for clients

D : The investment banking division pressuring researchers to generate buy recommendations for the new client

Answer: A

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