PRMIA Exam I: Finance Theory Financial Instruments Financial Markets - 2015 Edition - 8006 Exam Questions

QUESTION NO: 1
Which of the following statements is true:
I. In a Dutch auction, every successful bidder pays the same price regardless of their bid II. In a standard auction, every successful bidder pays the same price regardless of their bid III. Dutch auctions start high and progressive bids are lower IV. Standard auctions start high and progressive bids are lower

QUESTION NO: 2
A bank advertises its certificates of deposits as yielding a 5.2% annual effective rate. What is the equivalent continuously compounded rate of return?

QUESTION NO: 3
What kind of a risk attitude does a utility function with downward sloping curvature indicate?

QUESTION NO: 4
When hedging one fixed income security with another, the hedge ratio is determined by:

QUESTION NO: 5
Using a single step binomial model, calculate the delta of a call option where future stock prices can take the values $102 and $98, and the call option payoff is $1 if the price goes up, and zero if the price goes down.
Ignore interest.

QUESTION NO: 6
A 'short squeeze' refers to a situation where

QUESTION NO: 7
Which of the following statements are true:

QUESTION NO: 8
Security A and B both have expected returns of 10%, but the standard deviation of Security A is 10% while that of security B is 20%. Borrowings are not permitted. A portfolio manager who wishes to maximize his probability of earning a 25% return during the year should invest in:

QUESTION NO: 9
Calculate the basis point value, or PV01, of a bond with a modified duration of 5 and a price of $102.

QUESTION NO: 10
The effectiveness of a hedge is determined by which of the following expressions, where x,y is the correlation between the asset being hedged and the hedge position:
A)

B)

C)

D)

QUESTION NO: 11
If the spot price for a commodity is lower than the forward price, the market is said to be in:

QUESTION NO: 12
The price of a bond will approach its par as it approaches maturity. This is called:

QUESTION NO: 13
What would be the most profitable strategy for an investor who expects interest rates to rise:

QUESTION NO: 14
How are foreign exchange futures quoted against the US dollar?