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EXAM IFM PRACTICE QUESTIONS WITH PERFECTLY ANSWERED SOLUTIONS!!
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EXAM IFM PRACTICE QUESTIONS WITH PERFECTLY ANSWERED SOLUTIONS!!
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EXAM IFM PRACTICEQUESTIONS WITH
PERFECTLY
ANSWERED
SOLUTIONS!!
IFM
Evatee 8/4/24 IFM
,EXAM IFM PRACTICE QUESTIONS WITH
PERFECTLY ANSWERED SOLUTIONS!!
Describe the credibility princible Answer - Claims in one's self interest are
credible only if they are supported by actions that would be too costly to take if
the claims were untrue
How do you solve for the price of a call in a 2-period binomial tree for a
European option? Answer - C = e^(-rh) ⋅ [Cu⋅p + Cd⋅(1-p)]
use this formula for each branch, working from right to left
You are given otherwise identical Calls and Puts on a stock, how should you
approach the problem? Answer - Using the put-call parity equation
C - P = S⋅e^(-δT) - K⋅e^(-rT)
You are given an efficient frontier on a graph. What portfolio should a rational
investor hold? Answer - Any portfolio tangent to the efficient frontier. The
tangent portfolio also has the highest Sharpe-ratio
On what levels are US Treasury securities taxed? Answer - Federally only, not
state-level
An investor can choose between two options: Option A - exchange 1 share of X
for 2 shares of Y; or Option B - exchange 2 shares of X for 4 shares of Y. Which
would have a higher value? Answer - Option B is twice as valuable
, What is the prepaid forward price of a stock with continuous dividends?
Answer - Fp(S) = S⋅e^(-δT)
T/F: investors actively try to follow and imitate each other's behavior and
actions? Answer - True
If an investor experiences the disposition effect, when will they sell the stock?
Answer - The disposition effect says that an investor will sell winners and hang
on to losers. So they will sell as soon as they start to make money.
How to solve a decision tree Answer - Work from right to left on the tree. At
each information node, calculate the expected value of cash flows; at each
decision node, choose whichever path produces the higher expected return
Which benefit is described by:
1. paid after x years, assuming the policyholder is alive
2. the policyholder may make annual withdrawals of p% Answer - Guaranteed
minimum withdrawal benefit
If stock prices are lognormally distributed and you are given the mean and
median, how do you solve for the volatility? Answer - median(S) = mean(S) ⋅
e^[−0.5⋅σ^(2)⋅t]
Calculate the profit from writing a covered call Answer - CF0 = -stock +
premium
CF1 = AV(CF0) + K
How do you solve for the price of a call in a 2-period binomial tree for an
American option? Answer - Calculate the pull-back value and immediate-
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