Analysis of Different Types of Risk
These questions cover the assessment of market, credit and other risks
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Question 1 of 5
Match each of the following types of credit spread to the appropriate definition
- The difference between the gross redemption yield on a bond and the reference treasury bond
- The addition to the risk-free rate required to value cash flows at the market price of a bond
- The average addition to the risk-free rate required to equate the average value of cash flows at the market price of a bond
Question 2 of 5
Which of the following is (or are) a feature of a good benchmark?Correct
It should be possible to buy all components of a benchmark, and a good benchmark should reflect an investor’s style and objectivesIncorrect
Question 3 of 5
Which of the following statements about the Merton credit model is (or are) true, holding all other variables constant?Correct
The longer into the future we look, the more likely a default must become; but an increase in the value of the firm lowers this probabilityIncorrect
Question 4 of 5
Which of the following can affect the expected recovery on a defaulted bond?Correct
All of these factors can be relevantIncorrect
Question 5 of 5
When using principal component analysis to model forward interest rates, which of the following statements is (or are) generally true?Correct
The first principal component generally represents changes in the level of the yield curve, the second the slope and the third the curvatureIncorrect