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This test consists of 5 multiple choice questions, 5 short answer questions, and 10 short essay questions.

Multiple Choice Questions

1. What did Black and Scholes use to calculate market change?
(a) Calculus and computer models.
(b) Meriwether's advice.
(c) In depth financial patterns.
(d) History.

2. What affected bond trading in the 1970's?
(a) The Vietnam War.
(b) The price of commodities.
(c) The democratic elections.
(d) The international monetary crisis.

3. Once in business, what did Long-Term have an easy time getting from banks?
(a) Personal information.
(b) Money.
(c) Endorsements.
(d) Workers.

4. What type of funds gained popularity in the 1990's?
(a) Real estate.
(b) Mutual.
(c) Value.
(d) Treasury.

5. What was the end result of Meriwether's Treasury bill deal?
(a) It was not a notable deal.
(b) It lost a lot of money.
(c) It frightened his colleagues.
(d) It made a lot of money.

Short Answer Questions

1. Where were Italian bonds sold by Long-Term?

2. How much of the face value of a bond do buyers typically pay?

3. What was J.F. Eckstein & Co. primarily working on in 1979?

4. What did Long-Term expect foreign banks to invest?

5. What company was Kapor the founder of?

Short Essay Questions

1. What did the Black-Scholes model help Long-Term to predict?

2. Why was it difficult to know the exact amount of assets Long-Term held?

3. Why did Meriwether increase his position on Treasury Bill futures in spite of the market fluctuation?

4. How would a loan from a major bank help the partners at Long-Term make money?

5. What dictates whether or interest only securities rise or fall?

6. Why was the investment in Italy a risky one for Long-Term to make?

7. In 1996, which significant companies did Long-Term surpass in terms of assets?

8. Why did hedge funds make money for managers?

9. How did Long-Term respond to firms that would not waive the fee for the haircut?

10. Why did Black and Scholes believe that price changes were random?

(see the answer keys)

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