1. An ideal yield curve would be (1 Point) i. Flat ii. Downward sloping iii. Upward sloping

a. The theory that a two year bond yields the same as two one-year bonds is known as the (1 Point) i. Liquidity Theory i. Expectations Theory iii. Segmented Markets Theory

b. The theory that time causes the yield curve to be upward sloping is known as the (1 Point) i. Liquidity Theory ii.Expectations Theory iii. Segmented Markets Theory

c. The theory that insurance companies would not buy short term securities is known as (1 Point) i. Liquidity Theory ii.Expectations Theory iii. Segmented Markets Theory

d. The theory that says yields are determined independently of each other is known as the (1 Point) i. Liquidity Theory ii.Expectations Theory iii. Segmented Markets Theory

e. Which of the following strategies is not beneficial for a stable yield curve (1 Point)

i. Buy and Hold ii.Barbell iii. Carry Trade

f. A strategy involving concentrating on a single point on the yield curve is known as (1 Point) i. Bullet ii.Barbell iii. Ladder

g. An equity strategy analyzing company results and models are known as (1 Point) i. Quantitative strategies ii.Fundamental Strategies iii. Top Down Strategies

h. A research analysts looking into a specific company is using (1 Point)

i. Top Down Analysis ii.Quantitative Analysis iii. Bottom Up Analysis

i. Which of the following sectors is least cyclical (1 Point) i. Consumer Discretionary ii.Industrials iii. Consumer Staples

j. Which of the following would be best to buy at the end of a recession (1 Point) i. Consumer Staples ii.Industrials iii. Healthcare

k. Which of the following sectors is least attractive at the beginning of a recession (1 Point) i. Healthcare ii.Consumer Staples iii. Energy

l. Buying a high yield security by shorting a low yield security is known as (1 Point) i. adjusting duration ii.carry trades iii. buy and hold

m. A duration of 10 means for every 1% change in interest rates, bond price will change by (1 Point) i. $10 ii.10% iii. 1%

n. An investor expecting interest rates to rise should (1 Point) i. extend duration ii.shorten duration iii. take no action

o. An investor expecting interest rates to fall should (1 Point) i. extend duration ii.shorten duration iii. take no action

p. A top down investor would first allocate capital to (1 Point) i. Companies ii.Industries iii. Countries

q. Explain why yield curve inversions generally precede recessions. (2 Points) r. Explain why the securities in a merger arbitrage strategy trade the way they do. (2 Points) s. Describe asset/liability matching and whether or not it ignores duration and price risk. (3 Points) t. Give an example of a market neutral strategy using an industry. (3 Points) u. A client is considering a 1 year bond with a 6% interest rate. He also notes that there is a 2 year bond with an 8% interest rate. What rate of interest 1 year from today for a 1 year bond would make him indifferent between the two options based on the expectations theory. Explain your answer. (3 Points) v. Explain how an investor can outperform a benchmark index. (2 Points)