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Which of the following best describes a 'when-issued' market?
Which of the following best describes a 'when-issued' market?A . where members of the syndicate bringing a bond issue to the market are obliged to not undercut the issue price till the first settlement dateB . The when-issued market is one where dealers trade in a security after its price...
Which of the following are valid credit enhancements used for credit derivatives:
Which of the following are valid credit enhancements used for credit derivatives: I. Overcollateralization II. Excess spread III. Cash reserves IV. Margin requirementsA . I, II and IVB . II, III and IVC . I, II and IIID . I, II, III and IVView AnswerAnswer: C Explanation: Overcollateralization is when...
If zero rates with continuous compounding for 4 and 5 years are 4% and 5% respectively, what is the forward rate for year 5?
If zero rates with continuous compounding for 4 and 5 years are 4% and 5% respectively, what is the forward rate for year 5?A . 5%B . 9%C . 9.097%D . 7%View AnswerAnswer: B Explanation: When rates are continuously compounded, we can calculate the marginal rate for year 5 as...
The greatest risk in energy derivatives trading comes from:
The greatest risk in energy derivatives trading comes from:A . interest rate risksB . risk of default by derivatives' counterpartiesC . hedging riskD . price volatilityView AnswerAnswer: D Explanation: Energy derivative markets are still not very liquid, and experience high price volatility. This high volatility is responsible for most of...
Which of the following statements is a correct description of the phrase present value of a basis point?
Which of the following statements is a correct description of the phrase present value of a basis point?A . It refers to the present value impact of 1 basis point move in an interest rate on a fixed income securityB . It refers to the discounted present value of 1/100th...
What would be the expected return on a stock with a beta of 1.2, when the risk free rate is 3% and the broad market index is expected to earn 8%?
What would be the expected return on a stock with a beta of 1.2, when the risk free rate is 3% and the broad market index is expected to earn 8%?A . 7%B . 7.4%C . 9%D . 9.6%View AnswerAnswer: C Explanation: The stock has a beta of 1.2, therefore...
Calculate the number of S&P futures contracts to sell to hedge the market exposure of an equity portfolio value at $1m and with a of 1.5. The S&P is currently at 1000 and the contract multiplier is 250.
Calculate the number of S&P futures contracts to sell to hedge the market exposure of an equity portfolio value at $1m and with a of 1.5. The S&P is currently at 1000 and the contract multiplier is 250.A . 4B . 8C . 6D . 2View AnswerAnswer: C Explanation: Since...
Which of the following statements is false:
Which of the following statements is false:A . Forward contracts are settled at the end of the contract while futures gains and losses are settled dailyB . Futures are OTC instruments with transparent pricing while forward contracts are notC . Forward contracts, unless collateralized, carry credit risks while the exchange...
A portfolio comprising a long call and a short put option has the same payoff as:
A portfolio comprising a long call and a short put option has the same payoff as:A . a long underlying asset and a short bond positionB . a short underlying asset and a short bond positionC . a long underlying asset and a long bond positionD . a short underlying...
For a stock that does not pay dividends, which of the following represents the delta of a futures contract?
For a stock that does not pay dividends, which of the following represents the delta of a futures contract?A . 0B . e^(rt)C . 1D . Futures contracts do not have a delta as they are not optionsView AnswerAnswer: B Explanation: The delivery price of a futures contract is given...
