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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 was Meriwether's team allowed to do, following the Treasury bill deal?
(a) Set Treasury standards.
(b) Spread trades.
(c) Vacation in Italy.
(d) Coach the office.

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

3. What is the method of paying a percentage of a bond called?
(a) A percentage price.
(b) A trim.
(c) A haircut.
(d) A bond fee.

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

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

Short Answer Questions

1. What unusual event happened when Meriwether began working with Treasury futures?

2. What did a dealer from J.F. Eckstein & Co. want from Meriwether in 1979?

3. In 1993, what was happening more than usual in America?

4. What type of government paper was bought in Italy?

5. What did Long-Term do with off-the-run bonds?

Short Essay Questions

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

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

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

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

5. Why was Meriwether made a partner at Salomon?

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

7. What methods did Black and Scholes use to predict the changes that would take place in the market?

8. What did Long-Term do to limit risk in bond trading?

9. What are relative value trades?

10. By the time Long-Term had been in business for two years, how did it compare to other old Wall Street companies?

(see the answer keys)

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