Online Access Free 8006 Practice Test

A treasury bond paying a 4% coupon is sold at a discount. Assume that the yield curve stays flat and constant over the next one year. The price of the bond one year hence can be expected to:

• A.Increase
• B.Cannot be determined with the given information
• C.Stay the same
• D.Decrease

A and B are two stocks with normally distributed returns. The returns for stock A have a mean of 5% and a standard deviation of 20%. Stock B has a mean of 3% and standard deviation of 5%. Their correlation is -0.6.
What is the mean and volatility of a portfolio which holds stocks A and B in the ratio 6:4?

• A.4.2% and 1.19%
• B.4% and 10.92%
• C.4.2% and 10.92%
• D.4.2% and 14%

Which of the following statements is not correct with respect to a European call option:

• A.An increase in the volatility of the underlying always increases the value of the option
• B.An increase in the time to expiry always increases the value of the option
• C.A increase in the risk-free rate of interest always increases the value of the option
• D.An increase in the price of the underlying always increases the value of the option

What is the running yield on a 6% coupon bond selling at a clean price of $96?

• A.5.70%
• B.6.30%
• C.6.00%
• D.6.25%

Which of the following statements are true:
I. Forward prices for a stock will fall if dividend expectations increase for the period the contract is alive II. Three month forward prices will decline if the 10 year rate goes up, and short term rates stay unchanged III. Futures exchanges require buyers but not sellers to deposit initial margins IV. Variation margin is to be deposited when a futures contract is entered into
V. Futures exchanges requires hedgers and speculators to deposit identical margins VI. Interest rate futures contracts carry duration but no convexity due to the daily cash settlements

• A.II and III
• B.I, II, V and VI
• C.I
• D.I and IV