When Genius Failed Test | Mid-Book Test - Easy

Roger Lowenstein
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This test consists of 15 multiple choice questions and 5 short answer questions.

Multiple Choice Questions

1. What was the typical scenario for bond investors in 1994?
(a) Substantial gains.
(b) Loss.
(c) Minimal gains.
(d) Few invested in bonds.

2. What group did Meriwether found in 1977?
(a) Smith & Meriwether Co.
(b) The Arbitrage Group.
(c) The Meegen Group.
(d) The Commanders.

3. Meriwether believed that risk and volatility were what?
(a) Abstract ideas.
(b) Unmanagable.
(c) A part of life.
(d) Quantifiable.

4. In 1994, why did the price of bonds drop?
(a) The Fed raised interest rates.
(b) There was too much wealth in America.
(c) The Fed lowered interest rates.
(d) Property value went down.

5. In 1996, what was the response of most of the banks in terms of offering credit financing to Long-Term?
(a) Interested.
(b) Interested but wary.
(c) Competitive.
(d) Eager.

6. Michael Steindardt believed what was the "culprit in 1994"?
(a) Wealth.
(b) Foolish investments.
(c) Poverty.
(d) Leverage.

7. Who became the temporary CEO of Meriwether's group when scandal hit?
(a) Warren Buffet.
(b) Paul Mozer.
(c) J.F. Salomon.
(d) John Meriwether.

8. What notable company went bankrupt in the 1970's?
(a) Penn Coal.
(b) Penn North Distillery.
(c) Penn Central Railroad.
(d) Penn Weapons Industry.

9. What financial crisis did Long-Term make it through that most of the market didn't?
(a) The Mexican crisis.
(b) The U.S. crisis.
(c) The Switzerland crisis.
(d) The Germany crisis.

10. How much did Long-Term earn in its first year of operation?
(a) 28%.
(b) 10%.
(c) 5%.
(d) 75%.

11. What did Rosenfeld and his friend develop?
(a) Energy bars.
(b) A financial museum.
(c) Energy drinks.
(d) Software.

12. Meriwether was threatened with what, if his Treasury bill deal did not pan out?
(a) A promotion.
(b) A lawsuit.
(c) Termination.
(d) Death.

13. What did the traders accept about the financial models they used?
(a) They removed the element of surprise.
(b) They were imperfect.
(c) They were expensive.
(d) They were smarter than humans.

14. How long did Long-Term expect their investors to commit?
(a) 3 years.
(b) 6 months.
(c) 3 months.
(d) 1 year.

15. Why did Long-Term trade in Italy?
(a) It was a safe market.
(b) The opportunity for big returns.
(c) Meriwether was Italian.
(d) The tax write-off opportunity.

Short Answer Questions

1. What did Long-Term do when IOs started to fall?

2. What did Black and Scholes use to calculate market change?

3. Where was David W. Mullins working when Meriwether hired him?

4. How many employees were with Long-Term in 1996?

5. How much money did Meriwether need to start Long-Term?

(see the answer keys)

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