Question 1

Sophia believes that the spread between a corporate bond and a government bond will increase in the short term due to expected economic volatility. What is the most appropriate strategy if Sophia is currently in a yield spread arbitrage position?

Options :

A : Increase her short position in the corporate bond and cover her long position.

B : Maintain current positions as the spread is expected to widen.

C : Increase her long position in the corporate bond and short the government bond.

D : Reduce both long and short positions to minimize risk.

Answer: A

Question 2

Emma invested in a split-share corporation where the preferred shares have a priority claim on $40 of the common shares’ value. If the current value of the common shares is $55 and the corporation is winding up, what amount will Emma receive for her capital shares if they hold the remaining value after the preferred shares' claim?

Options :

A : $15.

B : $40.

C : $95.

D : $55.

Answer: A

Question 3

An equity market-neutral strategy is designed to?

Options :

A : Maintain zero beta and no market exposure.

B : Have net long exposure to capitalize on market trends.

C : Adjust long and short positions dynamically based on market movements.

D : Use derivatives to hedge market risk.

Answer: A

Question 4

In a scenario where interest rates are expected to decline, which of the following bonds would likely experience the greatest increase in price?

Options :

A : A bond with a short term to maturity and a low coupon rate.

B : A bond with a long term to maturity and a low coupon rate.

C : A bond with a long term to maturity and a high coupon rate.

D : A bond with a short term to maturity and a high coupon rate.

Answer: B

Question 5

Why might a designated broker engage in the removal of ETF units from the market?

Options :

A : To adjust the index tracking error.

B : To capitalize on arbitrage opportunities when ETFs trade at a premium.

C : To increase the NAV of the underlying securities.

D : To reduce liquidity in the ETF market.

Answer: B