IMC Asset Classes and Valuation 2

Question 1

What does 'duration' measure in the context of bond investment?

Accepted Answer

The sensitivity of a bond's price to changes in interest rates

Answer

The time until a bond matures

Answer

The credit quality of the bond issuer

Answer

The annual coupon rate of the bond

Question 2

A futures contract differs from a forward contract primarily because:

Accepted Answer

Futures are standardised and traded on an exchange with daily margin settlement

Answer

Futures are privately negotiated between two parties

Answer

Futures do not require any initial margin

Answer

Futures can only be used for commodities, not financial instruments

Question 3

In equity valuation, what does the price-to-book (P/B) ratio compare?

Accepted Answer

Market price per share to net asset value per share

Answer

Market price per share to annual revenue per share

Answer

Earnings per share to dividends per share

Answer

Total debt to total equity

Question 4

Which of the following is a feature of an index-linked gilt?

Accepted Answer

Its coupon and principal are adjusted in line with the UK Retail Prices Index (RPI)

Answer

It pays no coupon but is issued at a discount

Answer

It can be converted into ordinary shares of a company

Answer

Its coupon rate increases each year by a fixed amount

Question 5

What is a Real Estate Investment Trust (REIT) in the UK?

Accepted Answer

A listed company that owns and manages income-producing property and must distribute at least 90% of rental profits

Answer

A private equity fund that invests in start-up companies

Answer

A government bond secured by commercial property

Answer

A derivatives contract based on property price indices

Question 6

A put option gives the holder the right to:

Accepted Answer

Sell the underlying asset at the strike price

Answer

Buy the underlying asset at the strike price

Answer

Receive dividends from the underlying asset

Answer

Convert the option into shares of the company