11.
ASSERTION
The large number of issuers and
dollar amount outstanding make the
credit card asset-backed securities
(ABS) sector a particularly active
secondary market.
BECAUSE
REASON
The spreads for credit card ABS are
a benchmark for other ABS sectors.
12.
ASSERTION
Scenario approaches to assessing
risks tend to result in asset risks that
are low by historical standards.
BECAUSE
REASON
There is a behavioral regularity that
makes people reluctant to forecast
explicitly low-probability events in
which extreme outcomes would
occur.
Course 6: Spring 2003 - 22 - GO ON TO NEXT PAGE
13.
ASSERTION
Proponents of the efficient market
hypothesis do not advocate
technical analysis.
BECAUSE
REASON
Technical analysis relies on earnings
and dividend prospects, expectations
of future interest rates, and risk
evaluation.
14.
ASSERTION
In times of high interest rates,
investors will accept lower yields
from a bond with a sinking fund
provision.
BECAUSE
REASON
A sinking fund provision enhances
the liquidity of the debt.
15.
ASSERTION
Contingent immunization provides
the flexibility to alternate between an
active investment strategy and an
immunized investment strategy.
BECAUSE
REASON
Contingent immunization has an
effective monitoring procedure to
ensure the safety net investment
return is not violated.
Course 6: Spring 2003 - 23 - GO ON TO NEXT PAGE
16. You are given the following with respect to a mutual fund:
•assets on January 1, 2002: 200 million
•shares outstanding throughout the year: 10 million
•dividend income: 2 million
•fund appreciation in 2002: 8%
•fees: 0.5%
No securities were sold during the year.
No capital gain distributions were made during the year.
Dividends and fees are paid on December 31, 2002.
Calculate the net asset value as of December 31, 2002.
(A) 20.2
(B) 21.5
(C) 21.6
(D) 21.7
(E) 21.8
Course 6: Spring 2003 - 24 - GO ON TO NEXT PAGE
USE THIS PAGE FOR YOUR SCRATCH WORK
Course 6: Spring 2003 - 25 - GO ON TO NEXT PAGE
17. You are given the following with respect to a callable bond:
•annual coupon rate: 5%
•time to maturity: 2 years
•call price: 100
•par value: 100
You are also given the following with respect to one-year interest rates:
•current rate r0 b g: 5.0%
•the lower rate one year forward rL b g: 4.25%
•standard deviation: 0.1
Using Fabozzi’s binomial interest rate tree, calculate the value of the bond.
(A) 95.23
(B) 95.50
(C) 99.91
(D) 100.00
(E) 100.26
Course 6: Spring 2003 - 26 - GO ON TO NEXT PAGE
USE THIS PAGE FOR YOUR SCRATCH WORK
Course 6: Spring 2003 - 27 - GO ON TO NEXT PAGE
18-23. Each of questions 18 through 23 consists of two lists. In the list at the left are two items,
lettered X and Y. In the list at the right are three items, numbered I, II, and III. ONE of the
lettered items is related in some way to EXACTLY TWO of the numbered items. Indicate the
related items using the following answer code:
Lettered Item
Is Related to Numbered Items
(A)
X
I and II only
(B)
X
II and III only
(C)
Y
I and II only
(D)
Y
I and III only
(E)
The correct answer is not given by (A), (B), (C) or (D).

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