Mock Exam Questions with Answers Final Exam

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William Paterson University *

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Finance

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Jan 9, 2024

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Mock Exam Questions with Answers -Try to answer this mock exam first in order to get the most out of it Answers at the very end stating with #26 -The exam will be on December 14, 2023 in our classroom and on BlackBoard -The exam will consist of 25 multiple, choice, T/F and short answers -The exam is open book/open note 90 minutes -Some calculation will be required Calculation will be around returns (annualized and HPR) , scenario, averages (Arithmetic and Geometric) and margin as well as some bond math 1. A portfolio manager who is looking to track the S and P is an active or passive manager? 2. Name five asset classes 3. What are the three levels of analysis? 4. A market maker does not earn a bid/offer spread True False 5. What is another way to get a short exposure a stock aside from borrowing it? 6. Calculate the geometric return of the following:
7%, 8%, -3%, -1% 7. A higher Sharpe ratio is preferred over a lower one True False 8. What needs to be known in order to use the CAPM model? 9. Less liquidity for an asset will result in a lower price for it, everything else being the same True False 10. Define arbitrage 11. What factors may be considered in APT? 12. What are the key dates in a bonds lifecycle?
13. The amount of accrued interest for a bond is directly related to the clean price of the bond True False 14. How is SOFR determined a. Survey b. T bill rates c. Repo rates d. Libor 15. Why does a floating rate note have a very low duration? a. Payments and yield move in the same direction b. Payments are fixed c. Payments and yields move in opposite directions d. None of the above 16. Name three types of Fixed Income risk
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17. What is the dirty price of a bond used for? 18. What is the price of a bond that has a yield of 4.5, a coupon of 5.0% and maturity in 3 years if coupon payments are made annually? 19. What is the ytm of a bond that has a price of 101.5 and a coupon of 2.2% with a maturity of 5 years and an annual payment? 20. What does the DV01 measure? 21. How can I find a DV01 if I know the modified duration? 22. Modified duration is useful for larger interest rate moves True False
23. What does convexity measure? 24. What does duration (not modified duration) measure? 25. A corporate bond has both credit risk and interest rate risk True False
Answers 26. A portfolio manager who is looking to track the S and P is an active or passive manager? Active 27.Name five asset classes Stocks Bonds FX Commodities Real estate Crypto Private investments 28.What are the three levels of analysis? Macro Industry Asset 29.A market maker does not earn a bid/offer spread True False 30.What is another way to get a short exposure a stock aside from borrowing it? Buy a put option Short a stock forward
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Stock swap 31. Calculate the geometric return of the following: 7%, 8%, -3%, -1% 2.64% 32. A higher Sharpe ratio is preferred over a lower one True False 33.What needs to be known in order to use the CAPM model? Risk free rate Market return Asset beta 34.Less liquidity for an asset will result in a lower price for it, everything else being the same True False
35. Define arbitrage Instant riskless profits 36. What factors may be considered in APT? Inflation Interest rates GDP Commodity prices 37. What are the key dates in a bonds lifecycle? Issue date Trade date Settlement date Coupon payment date Maturity date 38. The amount of accrued interest for a bond is directly related to the clean price of the bond True False
39. How is SOFR determined e. Survey f. T bill rates g. Repo rates h. Libor 40. Why does a floating rate note have a very low duration? e. Payments and yield move in the same direction f. Payments are fixed g. Payments and yields move in opposite directions h. None of the above 41. Name three types of Fixed Income risk Interest rate Credit Liquidity Call Reinvestment Sovereign 42. What is the dirty price of a bond used for? Settlement Risk management Financing
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43. What is the price of a bond that has a yield of 4.5, a coupon of 5.0% and maturity in 3 years if coupon payments are made annually? 101.37 44. What is the ytm of a bond that has a price of 101.5 and a coupon of 2.2% with a maturity of 5 years and an annual payment? 1.88% 45. What does the DV01 measure? Change in value of a bond position caused by a one basis point move 46. How can I find a DV01 if I know the modified duration? DV01 = Mod dur x dirty price 47. Modified duration is useful for larger interest rate moves True False 48. What does convexity measure?
A bond's convexity measures the sensitivity of a bond's duration to changes in yield 49. What does duration (not modified duration) measure? The weighted average of the time to receive the cash flows from a bond 50. A corporate bond has both credit risk and interest rate risk True False Answers
1. The buyer of a Credit Default Swap pays the spread (or Price) of the swap every year until maturity True False 2. Interest rate swaps are an example of an asset class True False 3. What is typically the second level of analysis for both top down and bottom up investing approaches? Typically it’s the industry level, or second level 4. The GLB Act of 1999 allowed commercial banks to do what? The GLB Act allowed banks to conduct investment banking activities 5. Name 3 causes of the financial crisis Excess leverage Low interest rates Poor credit approval standards 6. Passive investment management a. Typically has lower fees than active management b. Attempts to beat the market c. Attempts to achieve “Alpha” d. None of the above 7. Fixed income types include all BUT one of the following
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a. Money markets b. Treasuries c. Municipals d. Warrants 8. T-bills are a discount product True False 9. Convertible bonds may be described as a bond with an equity put option True False 10. What are the four derivative types? Swaps Options Forwards Futures 11. All derivatives include a premium that is payable upfront True False 12. Name three types of equity
Preferred Common ADR 13. Provide two examples of a primary market New stock issuance and new bond issuance-the first sale of these to investors 14. A market maker buys on the bid side and sells on the offer side True False 15. The purpose of a limit order is To sell an asset at above current market rates or the buy an asset at below current market rates 16. If I have borrowed 100% of my capital and invested it all in the stock market, a 10% market return will result in what return to my capital? Leverage is 2x so the return is 10% x 2 = 20%
17. In addition to short selling, what is another way to benefit from a stock’s price decline? Put option Stock swap 18.Most mutual funds are closed end funds True False 19.What are three benefits of an ETF? Can short sell Liquidity Low fees 20.If I have a one year zero coupon that is priced at 91.80, what is its annualized return? 100/91.80 – 1 = 8.93% 21. Why is standard deviation used as a risk measure instead of variance?
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Units of measurement are the same as the mean 22. What is the geometric average of the following returns: 10%, -3%, 18%, -10%, 2 %, 3% 2.95% 23. What three things does VAR tell us? 1. Maximum loss 2. For a given time period 3. 3. To a degree of confidence 24. What does the Sharpe ratio measure? Risk premium/SD of excess returns 25.What is a weakness of VAR? It tells us nothing of the extent true maximum loss