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NEW QUESTION: 1
An equity portfolio manager desires to be 'market neutral'. His portfolio is valued at $10m and has a beta of
0.7 to the broad market index. The index is currently at 1000 and an index contract multiplier is specified as
250. What should he do to make the beta of his portfolio zero?
A. Buy 40 contracts of the index futures contract
B. Buy 28 contracts of the index futures contract
C. Sell 40 contracts of the index futures contract
D. Sell 28 contracts of the index futures contract
Answer: D
Explanation:
Explanation
In terms of beta, his exposure is $10m*0.7 = $7m. This exposure is long. In order order to neutralize his long exposure, he needs to have an equal an identical short position with the same beta as this long position (of course, in the short direction). We need to figure out how many contracts will have a beta equal to his held position. (The beta of a futures contract is slightly different from 1 when compared to spot, but in the absence of other information in the question it is always okay to assume that the beta of the futures contract is 1. Such precision does not matter because of other errors such as rounding etc that cannot be anyway done away with.) He needs to short futures contracts on the index with $7m in notional value. The value of each contract is currently 1000*250 =$250,000. He therefore needs to short $7m/$250,000 = 28 contracts to become market or beta neutral.
NEW QUESTION: 2
Noah Scruples, an agent with CanDo Broker-Dealers, just got a copy of the most recent report on a
certain stock. The report was generated by CanDo's analyst department and is hot off the presses. It has
not yet even been put on the firm's website for the firm's clients.
The analyst department has just changed its recommendation on the stock from "Hold" to "Strong Buy"
based on new information that it has obtained on the company. Can Noah
rush to his office to buy shares of the stock before the analysts release their reports to CanDo's clients?
A. No. It is unethical for him to trade based on this information before the firm's clients have received the
information.
B. Both B and C are true statements.
C. Yes. The firm's analysts used publicly available information to assess the stock and make its
recommendation, so Noah can buy the stock now on his own account.
D. No. This is a prohibited activity referred to as "painting the tape."
Answer: A
Explanation:
No. It is unethical for him to trade based on the information that just came from the analysts
before the firm's clients have the information. This is a prohibited practice called "front running."
NEW QUESTION: 3
The MOST useful way to describe the objectives in the information security strategy is through:
A. mapping the IT systems to key business processes.
B. attributes and characteristics of the 'desired state."
C. overall control objectives of the security program.
D. calculation of annual loss expectations.
Answer: B
Explanation:
Explanation
Security strategy will typically cover a wide variety of issues, processes, technologies and outcomes that can best be described by a set of characteristics and attributes that are desired. Control objectives are developed after strategy and policy development. Mapping IT systems to key business processes does not address strategy issues. Calculation of annual loss expectations would not describe the objectives in the information security strategy.
