14. X. Agency CMOs I. Usually rated by bond rating
agencies.
Y. Whole-loan CMOs II. Do not employ credit enhancement
techniques.
III. Employ credit enhancement
techniques.
Course 6: Spring 2004 - 19 - GO ON TO NEXT PAGE
Morning Session
10-16. Each of questions 10 through 16 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).
15. X. Horizon matching I. Active management.
Y. Contingent immunization II. Reduces impact of non-parallel
move of yield curve.
III. Always duration matched.
16. X. Value-at-risk model I. Measures the maximum loss in value
a company’s portfolio is likely to
sustain over a period of time as a
result of changes in market prices.
Y. Stress test II. Measures a company’s exposure to
extreme movements in stock prices.
III. Uses average historical correlations
among asset prices.
Course 6: Spring 2004 - 20 - GO ON TO NEXT PAGE
Morning Session
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Course 6: Spring 2004 - 21 - GO ON TO NEXT PAGE
Morning Session
17. You are given the following:
•issues traded: 4,800
•advances: 2,600
•declines 1,500
•unchanged: 650
•new highs: 150
•new lows: 50
•advancing volume (000): 470,000
•declining volume (000): 235,000
•total volume (000): 740,000
Calculate the “trin” statistic.
(A) 0.87
(B) 1.02
(C) 1.15
(D) 1.17
(E) 2.00
Course 6: Spring 2004 - 22 - GO ON TO NEXT PAGE
Morning Session
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Course 6: Spring 2004 - 23 - GO ON TO NEXT PAGE
Morning Session
18. An investor purchases 50 shares of a stock on January 28, 2004.
You are given the following:
•annual interest on borrowed funds: 7%
•value of each share on January 28, 2005: 100
•investor’s return from January 28, 2004 to January 28, 2005: 30%
Calculate the original purchase price of each share, if the initial margin percentage is
75%.
(A) 66.23
(B) 80.48
(C) 81.63
(D) 85.06
(E) 86.02
Course 6: Spring 2004 - 24 - GO ON TO NEXT PAGE
Morning Session
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Course 6: Spring 2004 - 25 - GO ON TO NEXT PAGE
Morning Session
19. You are given the following:
•target return on capital: 15%
•net spread for residential mortgages: 1%
•net spread for mortgage bonds: 0.9%
•pre-tax return: 21%
•risk- free rate: 6%
•MCCSR factors:
BBB mortgage bonds: 2%
BB residential mortgages: 4%
Calculate the MCCSR-adjusted spread for residential mortgages and mortgage bonds,
respectively.
(A) (0.40%, 0.30%)
(B) (0.40%, 0.60%)
(C) (0.64%, 0.72%)
(D) (0.70%, 0.60%)
(E) (0.76%, 0.78%)
Course 6: Spring 2004 - 26 - GO ON TO NEXT PAGE
Morning Session
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Course 6: Spring 2004 - 27 - GO ON TO NEXT PAGE
Morning Session
20. You are given the following:
Risk Amount
C-1 80
C-2 100
C-3 90
C-4 10
Using Zeppatella’s formula for incremental RBC, determine (Wa, Wi), where Wa is the
weight associated with assets and Wi is the weight associated with insurance.
(A) (0.743, 0.437)
(B) (0.793, 0.467)
(C) (0.793, 0.507)
(D) (0.862, 0.507)
(E) (0.862, 0.682)
Course 6: Spring 2004 - 28 - GO ON TO NEXT PAGE
Morning Session
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Course 6: Spring 2004 - 29 - GO ON TO NEXT PAGE
Morning Session
21-24. Questions 21 through 24 consist of an assertion in the left-hand column and a reason in
the right-hand column. Code your answer to each question by blackening space:
(A) If both the assertion and the reason are true statements, and the reason is a correct
explanation of the assertion.
(B) If both the assertion and the reason are true statements, but the reason is NOT a
correct explanation of the assertion.
(C) If the assertion is a true statement, but the reason is a false statement.
(D) If the assertion is a false statement, but the reason is a true statement.
(E) If both the assertion and the reason are false statements.

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