When Genius Failed Test | Mid-Book Test - Medium

Roger Lowenstein
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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. How much of the face value of a bond do buyers typically pay?
(a) 15%.
(b) 1%.
(c) 10%.
(d) 25%.

2. In 1996, Long-Term was four times as large as what?
(a) The U.S. Treasury.
(b) The Mexican Treasury.
(c) The largest hedge fund.
(d) A small European country.

3. Why did Rosenfeld choose not to co-found Kapor's project?
(a) He was too interested in finance.
(b) He was competitive with Kapor.
(c) He was too interested in travel.
(d) He did not like Kapor.

4. In 1996, Long-Term had achieved thirty times its what?
(a) Debt capacity.
(b) Original goal.
(c) Proposed value.
(d) Starting capital.

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

Short Answer Questions

1. In 1996, what was Long-Term seeking from the bank that would handle their credit?

2. In 1996, what was the second bank Long-Term approached about financing their credit?

3. What did Black and Scholes think price changes were?

4. What company was Kapor the founder of?

5. How much did Long-Term plan to take from its profits?

Short Essay Questions

1. What were the legal limits on hedge fund investors?

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

3. On what did Long-Term base the claim that it was difficult to lose money with them?

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

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

6. Why were convergence trades the safest trades made by Long-Term?

7. When Meriwether was building his team at the Arbitrage Group, what qualities did he look for?

8. Why did hedge funds make money for managers?

9. Although Long-Term was performing so well by 1996, how many Americans knew of the fund's existence?

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

(see the answer keys)

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