53 CFA Level 1 Online Mock Test Free Questions and Answers on Derivatives

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for the short, options on what, where and when to deliver. Some Treasury contracts give short choice of several bonds to deliver, options on when to deliver. Some physical assets also offer delivery location options.Can be valuable to short.

• How does a REIT payout?
• What are some Relative Value Strategies?
• Who are end-users of forwards?
• Some examples of delivery options to the short?

long/short public equity and derivatives on equity-market neutral-fundamental growth-fundamental value-quant directional-short bias

• How does a REIT payout?
• What does an equity hedge fund do?
• What does Roll Yield mean?
• What does Contango mean?

Deliverable - the instrument under contract is actually delivered at settlementCash settlement - the party with the negative value is obligated to pay that amount to other party. I.E. a forward for $990 TBill selling at expiration for $992 means short would pay long $2 difference and keep instrument, and Vice Versa.

• What are the 3 types of real estate indices?
• What are the 2 types of Forward contract settlements?
• What are the types of assets listed as Real Estate?
• What are the 3 methods of real estate valuation?

Actively managed funds of futures-can be structured like a limited partnership (hedge fund with high fees) OR like a mutual fund with public shares (greater liquidity in the latter)

• What does an equity hedge fund do?
• What is a derivative?
• What does Contango mean?
• What are Managed Futures Funds

mezzanine debt refers to debt/preferred shares that are subordinate to the high-yield bonds issued and carry warrants or conversion options

• How is LIBOR quoted?
• What is mezz debt?
• What does Contango mean?
• What is a derivative?

-Based on 90-day LIBOR (add-on yield) -.01 change in price represents $25 change-UNLIKE interest rate call options/forwards, increase in yields is bad for a long, decrease is good. INVERSE.

• What are the mechanics behind T-Bill futures?
• What are the mechanics of Stock Index futures?
• What are the mechanics behind Treasury (bond) futures?
• What are the mechanics behind Eurodollar futures?

1) a long accepts DELIVERY and pays contract price to short OR short delivers goods. Happens <1%2) Cash Settlement contract - futures account is marked to market based on settlement price on last day of trading3)Offsetting trade. Clearinghouse holds other side of trade, so they net you out. MAJORITY OF SETTLEMENTS- if price difference, must pay difference per amount of asset from margin acct.4) Exchange for Physicals - settle with trader in opp position off the pit. Kind of like a forward

• What are the 4 ways to terminate a futures contract?
• What are the mechanics of Stock Index futures?
• How do you terminate forward contracts?
• What are the 3 types of real estate indices?

real estate investment income (be it mortgages, office buildings, hotels etc) is paid out as dividends - 90% at least to avoid REIT paying taxes.

• What does Contango mean?
• What is a derivative?
• How does a REIT payout?
• What is mezz debt?