136. A three-year, credit-linked note (CLN) with underlying Company Z has a LIBOR+60 bps semi-annual coupon. The face value of the CLN is USD 100. LIBOR is 5% for all maturities. The current three-year credit default swap spread for Company Z is 90 bps. The fair value of the CLN is closest to

a.       USD 100.00

b.       USD 111.05

c.       USD 101.65

d.       USD 99.19

137. A fund manager currently has a delta-neutral portfolio with a gamma of –11,000. He is interested in reducing the portfolio gamma to provide protection against large movements in prices. A particular traded call option has a delta of 0.87 and gamma of 3.5. To make the portfolio gamma neutral, how many call options must be bought or sold?

a.       Buy 3,143 call options

b.       Sell 3,143 call options

c.       Buy 2,734 call options

d.       Sell 2,734 call options

138. The severity distribution of operational losses usually has the following shape:

a.       Symmetrical with short tails

b.       Long tailed to the right

c.       Uniform

d.       Symmetrical with long tails

139. The risk of the occurrence of a significant difference between the mark-to-model value of a complex and/or illiquid instrument and the price at which the same instrument is revealed to have traded in the market is referred to as

a.       liquidity risk

b.       dynamic risk

c.       model risk

d.       mark-to-market risk

140. In a collateralized debt obligation (CDO), the Special Purpose Vehicle (SPV) is typically

a.       A-rated.

b.       AAA-rated.

c.       not rated.

d.       BBB-rated.