Sample Questions
Question 1
Easy
Private equity is best described as:
Solution
D is correct.
Private equity refers to equity investments in companies that are not publicly traded on a stock exchange. This includes venture capital, leveraged buyouts, growth equity, and distressed investing, among other strategies.
Private equity refers to equity investments in companies that are not publicly traded on a stock exchange. This includes venture capital, leveraged buyouts, growth equity, and distressed investing, among other strategies.
Question 2
Medium
The law of one price states that:
Solution
B is correct.
The law of one price states that two assets (or portfolios) that produce identical cash flows in every state of the world must have the same price. Any price discrepancy would create a riskless arbitrage opportunity.
The law of one price states that two assets (or portfolios) that produce identical cash flows in every state of the world must have the same price. Any price discrepancy would create a riskless arbitrage opportunity.
Question 3
Hard
An interest rate cap is best described as a series of:
Solution
C is correct.
An interest rate cap is a portfolio of individual call options on a reference interest rate, each known as a caplet. Each caplet pays off when the reference rate exceeds the strike (cap) rate on a reset date.
An interest rate cap is a portfolio of individual call options on a reference interest rate, each known as a caplet. Each caplet pays off when the reference rate exceeds the strike (cap) rate on a reset date.
