Value at risk

mayankmundhra30
Good Student
Posts: 23
Joined: Sat Jun 25, 2016 8:13 am

Value at risk

Postby mayankmundhra30 » Sun Aug 28, 2016 4:37 am

1) Matt is asked to check for arbitrage opportunity in the Treasury bond market by comparing the cash flows of selected bonds with the cash flows of combinations of other bonds. If a 1 year zero coupon bond is priced at USD 97.42 and a 1 year 12% bond paying coupons semi-annually is priced at 104.18. What should be the price of 1 year Treasury bond which pays 8% semi-annually?
Choose one answer.
a. 102.40 Incorrect
b. 101.93 Correct
c. 99.58 Incorrect
d. 101.42 Incorrect

2) You are asked to find the price of the US Treasury note. The following table gives the prices of two out of three US Treasury notes for settlement on August 30, 2012. All three notes will mature exactly one year later on August 30, 2013. Assume annual coupon payments and that all three bonds have the same coupon payment date
Coupon Price
5% 97.5
7% ?
8% 103.2.

Approximately what would be the price of the 4 1/2 US Treasury note?
Choose one answer.
a. 99.64 Incorrect
b. 98.20 Incorrect
c. 98.64 Correct
d. 100.20 Incorrect

3) Mr. Hudson has written a put option on the S&P 500 index. The option has an exercise price and a maturity that is not available for options traded on exchanges. He wants to hedge his position dynamically. Which of the following statements about the risk of his position are correct?
He can make his portfolio delta neutral by shorting index futures contracts.
A short position in an S&P 500 futures contract that will make his portfolio insensitive to both small and large moves in the S&P 500.
A long position in a traded option on the S&P 500 will help hedge the volatility risk of the option he has written.
To make his hedged portfolio gamma neutral, he needs to take positions in options as well as futures.
Choose one answer.
a. I, II & III Incorrect
b. I & III Incorrect
c. II only Incorrect
d. I, III & IV Correct
Please explain all the options

4) Mark FRM is a market risk manager at Netlong Securities. He is analyzing the risk of the S&P500 Index options position. His risk report shows the position is exposed to long gamma and short vega risks. Which of the following positions of options show exposures consistent with his report?
Choose one answer.
a. The positions are long expiry long Call and short expiry short Put. Incorrect
b. The positions are long expiry long Put and long expiry short Call. Incorrect
c. The positions are long expiry long Call and short expiry short Call. Incorrect
d. The positions are short expiry long Call and long expiry short Call. Correct

5) There is a call option on Microsoft Inc. with 120 - days to maturity trades at USD 1.90. The option has a delta of 0.6339. A dealer sells 200 call option contracts and to delta - hedge the position, the dealer purchases 12,678 shares of the stock at the current market price of USD 45 per share. The multiplier is 100. The following week, the prices of both the stock and the call option increase and consequently delta increases to 0.7260. To maintain the delta hedge, the dealer should:
Choose one answer.
a. Purchase 1842 shares. Correct
b. Sell 1842 shares. Incorrect
c. Purchase 1493 shares. Incorrect
d. Sell 1493 shares. Incorrect

Return to “FRM Part I”



Disclaimer

Global Association of Risk Professionals, Inc. (GARP®) does not endorse, promote, review or warrant the accuracy of the products or services offered by EduPristine for FRM® related information, nor does it endorse any pass rates claimed by the provider. Further, GARP® is not responsible for any fees or costs paid by the user to EduPristine nor is GARP® responsible for any fees or costs of any person or entity providing any services to EduPristine Study Program. FRM®, GARP® and Global Association of Risk Professionals®, are trademarks owned by the Global Association of Risk Professionals, Inc

CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by EduPristine. CFA Institute, CFA®, Claritas® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

Utmost care has been taken to ensure that there is no copyright violation or infringement in any of our content. Still, in case you feel that there is any copyright violation of any kind please send a mail to abuse@edupristine.com and we will rectify it.