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

Multiple Choice Questions

1. What were the models Long-Term used unable to predict?
(a) Investor's exact return.
(b) Long-Term's exact income.
(c) All of these.
(d) Market collapse.

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

3. What type of strategy did Long-Term employ?
(a) High risk.
(b) Whatever was dictated by the market.
(c) Moderate risk.
(d) Low risk.

4. Where was Robert C. Merton working when Meriwether hired him?
(a) Wall Street.
(b) NASA.
(c) The Federal Exchange Commission.
(d) Harvard.

5. What did Long-Term want to do for investors?
(a) All of these.
(b) Limit risk.
(c) Make money.
(d) Build trust.

6. How much did the accounts for investors increase in 1994?
(a) 5%.
(b) 10%.
(c) 50%.
(d) 20%.

7. Where was the Long-Term Capital Portfolio stored?
(a) Cayman Islands.
(b) Switzerland.
(c) Germany.
(d) Bermuda.

8. In 1993, what was happening more than usual in America?
(a) Refinancing.
(b) Day trading.
(c) Starvation.
(d) Bankruptcy.

9. Where was David W. Mullins working when Meriwether hired him?
(a) Yale School of Finance.
(b) The United Nations.
(c) Federal Reserve.
(d) Salomon Brothers.

10. What year did Meriwether hire Myron Scholes?
(a) 1995.
(b) 1994.
(c) 1996.
(d) 1993.

11. In 1996, how much did Long-Term have in assets?
(a) $500 million.
(b) $1 billion.
(c) $140 billion.
(d) $120 million.

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

13. What did Black and Scholes think price changes were?
(a) Common occurences.
(b) Dangerous.
(c) Random events.
(d) Smart corrections.

14. When Meriwether increased his position in Treasury futures, what did he expect the market to do?
(a) Rise sharply overnight.
(b) Perform typically.
(c) Drop substantially.
(d) Collapse.

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

Short Answer Questions

1. Who gains from working with hedge funds?

2. In 1996, Long-Term had achieved thirty times its what?

3. What notable company went bankrupt in the 1970's?

4. What was Meriwether's team allowed to do, following the Treasury bill deal?

5. What did Meriwether do with his staff?

(see the answer keys)

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