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

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

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

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

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

Short Answer Questions

1. By the end of 1996, what was the status of the credit financing Long-Term wanted?

2. What is the CFTC short for?

3. Who developed the Black-Scholes model?

4. In 1996, Long-Term was four times as large as what?

5. What is the method of paying a percentage of a bond called?

Short Essay Questions

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

2. What are relative value trades?

3. Why did hedge funds make money for managers?

4. When did Meriwether begin making sales calls for Long-Term?

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

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

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

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

9. Why was Meriwether made a partner at Salomon?

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

(see the answer keys)

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