Practice 8006 Exam Online

Question 1

Which of the following statements is true in relation to the capital markets line (CML):

1. The CML is a transformation line that is tangential to the efficient frontier

II. The CML allows an investor to obtain the highest return for a given level of risk chosen according to the investor's risk attitude

III. The CML is the line passing through the point on the efficient frontier with the highest Sharpe ratio, and a y-intercept equal to the risk free rate

IV. The Sharpe ratio for the points on the CML increase in a linear fashion

A : I and III

B : II, III and IV

C : I and II

D : I, II and III

Answer: D

Question 2

The Federal Reserve tries to limit margin trading using which of the following techniques?

A : Setting a maximum leverage ratio as a multiple of capital posted for margin trading

B : By using the discount window

C : By using open market operations to mop up extra liquidity in the system

D : Setting limits on margin trading is not a part of the Federal Reserve's remit.

Answer: A

Question 3

A bank advertises its certificates of deposits as yielding a 5.2% annual effective rate. What is the equivalent continuously compounded rate of return?

A : 4.82%

B : 5%

C : 5.07%

D : 5.20%

Answer: C

Question 4

Calculate the settlement amount for a buyer of a 3 x 6 FRA with a notional of $1m and contract rate of 5%. Assume settlement rate is 6%.

A : Receive $9434

B : Pay $2463

C : Receive $2463

D : Pay $9434

Answer: C

Question 5

If the 3 month interest rate is 5%, and the 6 month interest rate is 6%, what would be the contract rate applicable to a 3 x 6 FRA?

A : 6%

B : 6.9%

C : 5.5%

D : 5%

Answer: B

Name:	Exam I: Finance Theory Financial Instruments Financial Markets - 2015 Edition
Exam Code:	8006
Certification:	PRM
Vendor:	PRMIA
Total Questions:	290
Last Updated:	Apr 25, 2024

PRMIA 8006