Question 1

The price of an interest rate cap is determined by:I. The period to which the cap relatesII. Volatility of the underlying interest rateIII. The exercise or the strike rateIV. The risk free rate

Options :

A : I, II, III and IV

B : I, II and III

C : II, III and IV

D : I, II and IV

Answer: B

Question 2

Which of the following is not a money market security

Options :

A : Treasury notes

B : Treasury bills

C : Bankers' acceptances

D : Commercial paper

Answer: A

Question 3

Which of the following portfolios would require rebalancing for delta hedging at a greater frequency in order to maintain delta neutrality?

Options :

A : A portfolio with a low delta and high vega

B : A portfolio with a high gamma

C : A portfolio with a high delta and low gamma

D : A portfolio with a low gamma

Answer: B

Question 4

Which of the following statements is true:

I. The standard deviation of a short position is the same as the standard deviation of a long position

II. The expected return of a short position is the same as that a long position in the same asset

III. If two assets are perfectly positively correlated, then a short position in one and a long position in the

other are negatively correlated IV. If we increase the weight of an asset in a portfolio, its correlation with other assets in the portfolio scales up proportionately

Options :

A : I, II, III and IV

B : II and IV

C : I and III

D : II, III and IV

Answer: C

Question 5

Two portfolios with identical Sharpe ratios will have

Options :

A : identical expected risk

B : identical expected risk and returns

C : returns identically proportionate to risk

D : identical expected returns

Answer: C

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