Unit 7 – Quiz

Type of swaps in which fixed payments of interest are exchanged by two counterparties for floating payments of interest are called

An option whose intrinsic value is calculated by comparing the strike price with the average spot price over the period of the option is

In a swap motivated by credit differentials, a firm should borrow in the market where

Agreement between two parties to exchange cash flows in future and cash flows are based on underlying instruments is called as

An option on a swap is a

The Security Market Line (SML) is

Which statement is true regarding the market portfolio?

Market risk is also called

Empirical results regarding betas estimated from historical data indicate that

What is a lease where the lessee maintains and insures the leased asset rather than the lessor in a full-service lease?

A bet on particular mispricing across two or more securities, with extraneous sources of risk such as general market exposure hedged away is a

Shares in hedge funds are priced at

The risk profile of hedge funds ______, making performance evaluation __________.

To force conversion, the call price of a convertible bond is generally

The risk profile of hedge funds ______, making performance evaluation ______.

The terms of futures contracts such as the quality and quantity of the commodity and the delivery date are

In India, Future contracts in _________ may be settled by delivery.

Why is the system of trading on margin practiced in futures markets?

Which of the following does the most to reduce default risk for futures contracts?

Which of the following is a legitimate reason for international investment?

Mezzanine finance has higher risk than

A factor affecting the growth of VC finance

Which of the following is a characteristic feature of venture capital firms?

Which of the following is known as Mezzanine capital?

With regard to hedge funds, ‘2 and 20’ is best explained as

The strike price of an option is

Standardization of derivative contracts

A put option described as in-the-money would find

Hedgers who are short in an asset can establish the maximum price they will have to pay for that asset by

A strangle is a mixed options strategy consisting of

Which of the following investment assets are the usual make-up of structured products?

One similarity among the various structured products is that there is

Structured note which is an intermediate term debt security is

Which of the following gives the most capital protection?

Investors may wish to invest in structured products as they

Which one of the following statements regarding structured products is true?

The risk of a stock in a portfolio can be expressed using the _____________________ instead of the covariance.

Risk in average individual stock can be reduced by placing an individual stock in?

The individual investor’s optimal portfolio is designated by which of the following?

The net wealth of the aggregate economy is equal to the sum of which of the following?

Most favourable portfolio is proficient portfolio with which of the following?

Which of the following sets the global benchmark price for crucial commodities?

Which of the following is not a commodity exchange?

Which of the following is not normally included as one of the advantages of real estate as an investment?

Which of the following is an advantage of investing in managed funds?

Which of the following is a disadvantage of investing in managed funds?

A trader is likely to prefer an options contract to a futures contract on an asset if

Which of the following is a major difference between swaps and futures contracts?

Regarding interest rate swaps, all of the following are true except

To adjust for stock splits

Which statement is not true regarding the Capital Market Line (CML)?

A security has an expected rate of return of 0.10 and a beta of 1.1. The market expected rate of return is 0.08 and the risk-free rate is 0.05. The alpha of the stock is

A __________ is a continuously offered debt instrument that is designed to fill the gap between commercial paper and long-term bonds with maturities currently ranging from 9 months to 30 years and has gained favor from the existence of shelf registration.

What allows the borrower to have credit up to some maximum amount over a specific period, but the notes are usually 90 days and allow the company to renew or borrow additionally?

By selling a convertible security instead of __________, companies create less dilution in earnings per share, both now and in the future. The reason is that the conversion price on a convertible security is higher than the issuing price on a new issue of __________.

Which of the following uses quantitative techniques and often automated trading systems to seek out many temporary misalignments among securities?

Hedge funds are typically set up as ______ and provide ______ information about portfolio composition and strategy to their investors.

The minimum investment in some new hedge funds is as low as ______, compared to a traditional minimum of ______.

The previous value of a portfolio that must be retained before a hedge fund can charge incentive fees is known as a

The buyer of a futures contract is said to have a __________ position and the seller of a futures contract is said to have a __________ position in futures.

Which of the following is a major difference between swaps and futures contracts?

The forward market is especially well-suited to offer hedging protection against

A multinational can centralize cash management and attempt to reduce exchange rate risk exposure through the use of

Which of the following does not make the firm more vulnerable to financial distress?

Which of the following is true regarding Leveraged Beta?

A business angel is best described in which one of the following statements?

If a venture capital investment contract provides for the protection of the venture capital group’s ownership stake if the firm sells new equity under duress, then the contract has a(n)

A provision in the venture capital fund’s investment contract that limits the firm’s ability to sell assets without prior investor approval is an example of

Credit default swaps are credit derivatives that

Mr. Z owns 500 shares of XYZ Ltd., around the annual budget time, he gets uncomfortable with the price movements. Which of the following will give him the hedge he desires? (Assume One futures contract = 100 Shares)

Which of the following actions will not close a long position in a call option?

Mr. X buys 100 calls on a stock with a strike of Rs.1200. He pays a premium of Rs.50 per call. A month later the stock trades in the market at Rs.1300. Upon exercise he will receive?

If Dan Ltd issues shares with a £1 nominal value, for £1.50 per share, then the gearing proportion and the current ratio will be affected as follows

When two risky securities that are positively correlated but not perfectly correlated are held in a portfolio

The “information effect” refers to the notion that

The public sale of common stock in a subsidiary in which the parent usually retains majority control is called

Recent accounting changes in the US

The benefits of diversification increase as the

The possibility that a country will take over a publicly held firm is referred to as the

What happens to corporate bond with a fixed interest rate, if interest rates in nation increase?

Risk mitigation involves all but which of the following?

Some investors will accept high risk investments and some investors prefer low risk investments. What is the term best describes that situation?

Which type of fund actively incorporates ethics and morality factors, as well as financial return, into its investment decisions?

Which one of the following describes a balanced fund?

Annabelle, a busy professional, is seeking a way to invest a fixed amount of her monthly salary into an actively-managed investment fund to invest for the long term. She has indicated she has a surplus $500 per month she would like to invest. Which investor service would be suitable for her?

Suppose the price of a share of Google stock is $500. An April call option on Google stock has a premium of $5 and an exercise price of $500. Ignoring commissions, the holder of the call option will earn a profit if the price of the share

If a person sells an in the money call option with strike price of Rs. 2600 at a premium of Rs. 154 and buys an out of the money call option with strike price Rs. 2800 at a premium of Rs. 49. If on expiry the stock closes at 3200, the net pay-off would be

Your opinion is that Tata Ltd., has an expected rate of return 13.75%. It has a beta of 1.3. The risk-free rate is 4% and the market expected rate of return is 11.5%. According to the Capital Asset Pricing Model, this security is

What is the commitment fee that will most probably be charged to the firm for the first year given the following information? The firm has just signed a three-year revolving credit agreement that has a $5 million maximum loan limit. The firm is borrowing $1 million today at 10 percent annual interest for the next year with a commitment fee of 0.4 percent. It does not anticipate borrowing any additional funds for the first year.

To take advantage of an arbitrage opportunity, an investor would
I. Short sell the asset in the low-priced market and buy it in the high-priced market.
II. Construct a zero investment portfolio that will yield a sure profit.
III. Make simultaneous trades in two markets without any net investment.
IV. Construct a zero beta investment portfolio that will yield a sure profit.

Assume that a Big Mac hamburger is selling for $1.99 in the United Kingdom, the same hamburger is selling for $2.71 in the United States, and the actual exchange rate (to buy $1.00 with British pounds) is 0.63. According to __________, the British pound is __________ the US dollar.

Consider the fair value equation for a commodities future, relating the futures price to the risk-free interest rate, a positive storage cost, and the spot price. This fair value equation implies that futures prices should be increasing in the time to maturity. Does this necessarily imply that any backwardated price pattern represents an exploitable profit opportunity?

How is the process of adjusting the Balance Sheet different in an LBO model, compared to what you might see in a typical merger model?

John Smith seeks $15 million from a VC fund. John and the VC agree that the company should be ready to go public in 8 years. At that time the company should have a market capitalization of $368.75 million. If the VC requires a 45% return on their investment, what is the fraction of the firm that the VC will receive for its $15 million investment?

You are a venture capitalist that is going to invest $10 million dollars today in a firm that is projected to be worth $100 million four years from today when it is expected to have an initial public offering. If you require a 40% annual return on investments with this kind of risk, then what portion of the equity of the firm should you own after the investment?

Nifty futures are trading at Rs. 3975. An investor buys a 4000 call for current month for Rs. 100. What should be the closing price of Nifty only above which the investor starts to make profits if he holds his long option position? (1 lot of Nifty = 50 Shares)

Assume the one year forward rate for a share of stock is $45, the spot price is $41 and the risk free rate is 5% pa. The observed forward price is and the implied forward price is

A structured product manager purchased a zero-coupon bond at Rs.20 for every Rs.100 invested in the structured product. The structured product aims to provide a return of the capital portion to investors at maturity. Assuming the zero-coupon bond matures at the same time as the structured product, what must the maturity value of the zero-coupon be in order to return the principal to the investor?

Suppose that the market price of Company X is $45 per share and that of Company Y is $30. If X offers three-fourths a share of common stock for each share of Y, the ratio of exchange of market prices would be

Suppose a project has many hazards that could easily injure one or more persons and there is no method of avoiding the potential for damages. The project manager should consider __________ as a means of deflecting the risk.

Strategy A has an expected value of 10 and a standard deviation of 3. Strategy B has an expected value of 10 and a standard deviation of 5. Strategy C has an expected value of 15 and a standard deviation of 10. Which one of the following statements is true?

The analysis of a complex decision situation by constructing a mathematical model of the situation and then performing a large number of iterations in order to determine the probability distribution of outcomes is called

For the year 2012, the average net asset value of S&P Asset Management is $ 47.00 million with an annual ongoing management fee of 0.146 million and reimbursable expenses of $ 0.141 million. If the management expense ratio (MER) is 2% of the total asset value, calculate the direct expense for managing the fund (ignore changes in values during the year).

Stephanie has invested in a fund that has high exposure to the entire market index, low management fees, real time intra-day pricing, very high liquidity, and units are tradable. Which of the following funds has Stephanie invested in?

Annabelle, the busy professional from the previous question, has been investing $500 per month using an automatic investment plan into her managed fund for over 12 months now. She has indicated that she wants all distributions from the funds to be automatically used by the fund managers to increase her unit holding and earn compounded rates of return. What investor service will carry out this function?