11. Assume the annual volatility of the market is 20% and a stock's annual volatility is 30%. The β of the stock is 1.2. What are the correlation and covariance, respectively, between the stock and the market?

A. A

B. B

C. C

D. D

12. A fund manager has a USD 100 million portfolio with a beta of 0.75. The manager has bullish expectations for the next couple of months and plans to use futures contracts on the S&500 to increase the portfolio′s beta to 1.8. Given the following information, which strategy should the fund manager follow.

l            The current level of the S& index is 1250

l            Each S& futures contract delivers USD 250 times the index

l            The risk-free interest rate is 6% per annum

A. Enter into a long position of 323 S& futures contracts

B. Enter into a long position of 336 S& futures contract

C. Enter into a long position of 480 S& futures contracts

D. Enter into a short position of 240 S& futures contracts

13. Which of the following statements is correct when comparing the differences between an interest rate swap and a currency swap?

A. At maturity, there is no exchange of principal between the counterparties in interest rate swaps and there is an exchange of principle in currency swap transactions.

B. At maturity, there is no exchange of principal between the counterparties in currency swaps and there is an exchange of principle in interest rate swap transactions.

C. The counterparties in a interest rate swap need to consider fluctuations in exchange rates, while currency swap counterparties are only exposed to fluctuations in interest rates.

D. Currency swap counterparties are exposed to less counterparty credit risk due to the offsetting effect of currency risk and interest rate risk embedded within the transaction.

14. Assuming the stock price and all other variables remain the same what will be the impact of an increase in the risk-free interest rate on the price of an American put option?

A. No impact.

B. Negative.

C. Positive.

D. Cannot be determined.

15. The payoff to a swap where the investor receives fixed and pays floating can be replicated by all of the following except:

A. A short position in a portfolio of FRAs.

B. A long position in a fixed rate bond and a short position in a floating rate bond.

C. A short position in an interest rate cap and a long position in an interest rate floor.

D. A long position in a floating rate note and a short position in an interest rate floor.

11. Assume the annual volatility of the market is 20% and a stock's annual volatility is 30%. The β of the stock is 1.2. What are the correlation and covariance, respectively, between the stock and the market?

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A. A

B. B

C. C

D. D

Correct answer is A

A is correct.  The calculation is

B is incorrect ? the values have been swapped (i.e. are in the wrong places).

C is incorrect ? there is sufficient information for the covariance to be determined.

D is incorrect ? the correlation calculation is incorrect and there is sufficient information for the covariance to be determined.

12. A fund manager has a USD 100 million portfolio with a beta of 0.75. The manager has bullish expectations for the next couple of months and plans to use futures contracts on the S&500 to increase the portfolio′s beta to 1.8. Given the following information, which strategy should the fund manager follow.

l            The current level of the S& index is 1250

l            Each S& futures contract delivers USD 250 times the index

l            The risk-free interest rate is 6% per annum

A. Enter into a long position of 323 S& futures contracts

B. Enter into a long position of 336 S& futures contract

C. Enter into a long position of 480 S& futures contracts

D. Enter into a short position of 240 S& futures contracts

Correct answer is B

B is correct. Since the desired beta (1.8) is greater than the current beta (0.75), a long position in S& futures contracts is needed.  The number of contracts needed is:

(?* - ?) * Portfolio_Value / Futures_Value = (1.8 - 0.75) * 100,000,000 / (1250 * 250)

= 336 contracts.

Reference:  John Hull, Options, Futures, and Other Derivatives, 6th ed. Chapter 3.

A is incorrect. Since the desired beta (Beta*) is greater than the current beta (Beta), the number of S& futures contracts is:

(Beta* - Beta) * Portfolio_Value / Futures_Value. 

C is incorrect. This answer increases the portfolio beta to 2.25.

D is incorrect. This answer decreases the portfolio beta to 0.0.

13. Which of the following statements is correct when comparing the differences between an interest rate swap and a currency swap?

A. At maturity, there is no exchange of principal between the counterparties in interest rate swaps and there is an exchange of principle in currency swap transactions.

B. At maturity, there is no exchange of principal between the counterparties in currency swaps and there is an exchange of principle in interest rate swap transactions.

C. The counterparties in a interest rate swap need to consider fluctuations in exchange rates, while currency swap counterparties are only exposed to fluctuations in interest rates.

D. Currency swap counterparties are exposed to less counterparty credit risk due to the offsetting effect of currency risk and interest rate risk embedded within the transaction.

Correct answer is A

A is correct. Counterparties in currency swaps exchange the full principal amount stated in the transaction agreement.  Counterparties in interest rate swaps exchange only the amount of gain/loss in the transaction.

Reference:  John Hull, Options, Futures, and Other Derivatives, 6th ed. Chapter 7.

B is incorrect.  Counterparties in currency swaps exchange the full principal amount stated in the transaction agreement.  Counterparties in interest rate swaps exchange only the amount of gain/loss in the transaction.

C is incorrect.  Interest rate swap counterparties need to consider fluctuations in interest rates; currency swap counterparties need to consider fluctuations in interest rates and exchange rates.

D is incorrect.  Currency swap counterparties not exposed to less counterparty credit risk.

14. Assuming the stock price and all other variables remain the same what will be the impact of an increase in the risk-free interest rate on the price of an American put option?

A. No impact.

B. Negative.

C. Positive.

D. Cannot be determined.

Correct answer is B

B is correct. As interest rates increase, investors require higher expected returns from stocks and the present value of future payoffs decreases.  These two effects decrease the value of a put option.

Reference:  John Hull, Options, Futures, and Other Derivatives, 6th ed. Chapter 9.

A is incorrect.

Interest rate changes do impact the value of a put option.

C is incorrect. As interest rates increase, investors require higher expected returns from stocks and the present value of future payoffs decreases.  These two effects decrease the value of a put option.

D is incorrect. The value of a put option changes monotonically with increases in the interest rate.

15. The payoff to a swap where the investor receives fixed and pays floating can be replicated by all of the following except:

A. A short position in a portfolio of FRAs.

B. A long position in a fixed rate bond and a short position in a floating rate bond.

C. A short position in an interest rate cap and a long position in an interest rate floor.

D. A long position in a floating rate note and a short position in an interest rate floor.

Correct answer is D

D is correct. The payoff to a swap where the investor receives fixed and pays floating could not be replicated by a long position in a floating rate note and a short position in an interest rate floor, since an investor in a long position in a floating rate note would receive floating and an investor in a short position in an interest rate floor would pay fixed.

Reference:  John Hull, Options, Futures, and Other Derivatives, 6th ed. Chapter 7.

A is incorrect. The payoff to a swap where the investor receives fixed and pays floating could be replicated by a short position in a portfolio of forward rate agreements.

B is incorrect. The payoff to a swap where the investor receives fixed and pays floating could be replicated by a long position in a fixed rate bond and a short position in a floating rate bond.

C is incorrect. The payoff to a swap where the investor receives fixed and pays floating could be replicated by a short position in an interest rate cap and a long position in an interest rate floor.

好难啊。

[此贴子已经被作者于2010-5-26 10:57:45编辑过]