Test Flashcards
1
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A
2
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3
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A
4
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5
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6
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The conflict between option buyers and sellers as the stock price nears the strike price.
7
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150%
8
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A
Buying a call option.
9
Q
A
$10
10
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A
$49.38
11
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A
Offer partial-recourse loans with graduated down payment requirements based on credit score
12
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A
The premium paid for the option
13
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A
10:01
14
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A
Buy a call option and a put option with the same strike price and expiration (long straddle).
15
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A
$2
16
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A
Bonds
17
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A
Financial leverage initially increases consumer expenditure but has a negative effect after 1-2 years.
18
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A
5.38%
19
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A
To receive a higher yield as compensation for the liquidity risk.
20
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A
It increases the probability of default
21
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A
22
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A
23
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A
24
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A
A positive correlation that weakens over time
25
26
27
Lenders took excessive risks knowing they wouldn't bear the full consequences.
28
29
It could lead to reinvestment risk as principal is returned earlier than expected.
30
31
Omitting nonlinear components like threshold effects may lead to incorrect inferences about cointegration.
32
The question is asking for the estimated average probability of default between year 2 and year 4, given the 2-year and 4-year CDS spreads and a 50% recovery rate. Here’s how to calculate it:
Given:
2-year CDS spread = 80 basis points (bps) = 0.80%
4-year CDS spread = 110 basis points (bps) = 1.10%
Recovery rate = 50%
Formula:
The probability of default can be estimated using the formula for credit spread:
