James Johnson manages a bond portfolio with all investment grade bonds. Adding which of the following bonds would minimize the credit risk of his portfolio?
A. A
B. B
C. C
D. D
Which one of the following four interest rate related yield curves is used to revalue loan and deposit positions in banks?
A. Derivative
B. Bond
C. Cash
D. Basis
An asset manager just bought a coupon paying bond with principal value $100,000 for $87,000 with a current yield of 4.7%. He assumes that if the yields change to 5.7% the price of the bond would be $84,500. Based on this assumption what is the modified duration of the bond?
A. 2,507.
B. 97.12.
C. 2.97.
D. 2.88.
Jack Richardson wants to compute the 1-month VaR of a portfolio with a market value of USD 10 million, with an average monthly return of 1% and average monthly standard deviation of 1.5%. What is the portfolio VaR at 99% confidence level?
Probability Cumulative Normal distribution
0.90 1.282
0.91 1.341
0.92 1.405
0.93 1.476
0.94 1.555
0.95 1.645
0.96 1.751
0.97 1.881
0.98 2.054
0.99 2.326
A. 164,500
B. 232,600
C. 246,750
D. 348,900
Which one of the following four statements about preferred shares is INCORRECT?
A. Preferred shares refer to a class of securities that is a cross between equity and debt.
B. Preferred shares represent residual of a corporation after its other liabilities have been paid.
C. Preferred shares are subordinated to debt.
D. Preferred shares can be perpetual or have maturities far exceeding debt maturities.
Which of the following measure describes the symmetry of a statistical distribution?
A. Mean
B. Standard deviation
C. Skewness
D. Kurtosis
Sam has hedged a portfolio of bonds against a small parallel shift in the yield curve using the duration measure. What should Sam do to ensure that the portfolio is hedged against larger parallel shifts in the yield curve?
A. Take positions to reduce the duration
B. Take positions to increase the duration
C. Take positions to make the convexity zero
D. Since the portfolio is duration hedged Sam does not need to take additional positions.
Unico Bank, concerned with managing the risk of its trading strategies, wants to implement the trading strategy that exposes the bank to the lowest market risk. Which one of the following four strategies should Unico take to limit its risk exposure?
A. A matched book strategy that allows the trading desk to match all customer positions immediately with an equal and opposite position by trading internally or with another bank.
B. A covering strategy that manages positions in the product by executing covering deals or hedging deal at the discretion of the trading des.
C. A passive hedging strategy that allows the traders to price transactions with customers and other banks, at the relevant bid price on the market.
D. A market-maker strategy that allows the traders to quote a buy and sell price to customers and other
banks and to trade at the relevant price on the sell side of the market.
A. $10.08
B. $20.04
C. $30.04
D. $40.08
If the yield on the 3-month risk free bonds issued by the U.S government is 0.5%, and the 3-month LIBOR rate is 2.5%, what is the TED spread?
A. 0.5%
B. -2.0%
C. 2.0%
D. 3.0%
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