29. You are given the following:
Portfolio Market Value Duration
Assets 100 5.2
Liabilities 85 4.4
Calculate the change in economic surplus if interest rates decline by 50 basis points.
(A) –1.5
(B) –0.7
(C) 0.0
(D) 0.7
(E) 1.5
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Morning Session
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Morning Session
30. The tracking error for a portfolio is 50 basis points. Further analysis shows that the
tracking error for the systematic risk is 45 basis points. Calculate the tracking error for
the unsystematic risk.
(A) 2 basis points
(B) 5 basis points
(C) 14 basis points
(D) 22 basis points
(E) 25 basis points
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Morning Session
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Morning Session
31-36. Each of questions 31 through 36 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).
31. X. Risk Based Capital I. Concentration factor adjustments
Y. Minimum Continuing Capital
Surplus Requirement
II. Asset factors follow a geometric
pattern as credit decreases
III. C-0 risk
32. X. Freddie Mac securities I. Free of credit risk
Y. U.S. Treasury securities II. In the primary market, sold through
single-price auction
III. Interest income may be subject to
state and local taxation
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Morning Session
33. X. Interest rate corridors I. Sometimes described as swapping
into a bond
Y. Interest rate collars II. Do not involve the sale of a floor
III. Offer protection from interest rate
increases at a lower cost than with
the purchase of a cap
34. X. Insured asset allocation I. Requires an investor risk tolerance
function
Y. Tactical asset allocation II. Requires a prediction procedure
III. Usually assumes that expected
returns, risks, and correlations
remain the same
35. X. Interest-only strips I. The price increases when interest
rates decline
Y. Principal-only strips II. Benefit from slowing prepayments
III. Have positive duration
36. X. CAPM I. Systematic factors
Y. Single index model II. Single period planners
III. Drastically reduces the necessary
inputs in the Markowitz portfolio
selection procedure
**END OF EXAMINATION**
MORNING SESSION
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Afternoon Session
COURSE 6
AFTERNOON SESSION
WRITTEN ANSWER
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Afternoon Session
**BEGINNING OF EXAMINATION**
AFTERNOON SESSION
8. (4 points) List and define the duties of an ERISA trustee. Provide a specific example of
a violation of each duty.
9. (4 points)
(a) Compare interest rate forwards, interest rate futures, interest rate
swaps, and interest rate caps and floors in terms of the following:
(i) Types of markets
(ii) Liquidity
(iii) Contract form
(iv) Transaction costs
(b) Explain how each of the following instruments can be
used to manage the interest rate risk exposure of a block of fixed-rate annuities
currently supported by floating-rate assets:
(i) Interest rate swaps
(ii) Interest rate caps and floors
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Afternoon Session