Absolute Free 8013 Exam Practice for Comprehensive Preparation 

A bank sells an interest rate swap to its client, with the client agreeing to pay the bank a fixed 4% and receive 3 month LIBOR + 100 basis points, payments due every quarter. After quarter 1, the 3 month LIBOR is 2% pa. Which of the following payments will happen in respect of this swap, assuming the contract notional is $100m, and the rate convention is 30/360. 

Which of the following statements is true:

I. The standard deviation of a short position is the same as the standard deviation of a long position

II. The expected return of a short position is the same as that a long position in the same asset

III. If two assets are perfectly positively correlated, then a short position in one and a long position in the

other are negatively correlated IV. If we increase the weight of an asset in a portfolio, its correlation with other assets in the portfolio scales up proportionately

I. The period to which the cap relates

II. Volatility of the underlying interest rate

III. The exercise or the strike rate

IV. The risk free rate