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

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

3. What did Meriwether do with his staff?
(a) Play golf.
(b) Travel.
(c) Dine.
(d) All of these.

4. What company was Kapor the founder of?
(a) Circuit Finance, Inc.
(b) Lochfield Growing Corporation.
(c) Finance Development International.
(d) Lotus Development Corporation.

5. Who developed the Black-Scholes model?
(a) David Black.
(b) John Meriwether.
(c) Jack Salomon.
(d) Myron Scholes.

Short Answer Questions

1. Why did Rosenfeld choose not to co-found Kapor's project?

2. In 1996, the first bank Long-Term approached regarding credit deemed Long-Term as what?

3. What did Rosenfeld and his friend develop?

4. In the 1970's, what type of trading was considered dull?

5. Michael Steindardt believed what was the "culprit in 1994"?

Short Essay Questions

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

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

3. What are relative value trades?

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

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

6. Why did hedge funds make money for managers?

7. What surprise happened when Meriwether was trading Treasury Bill futures?

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

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

10. Why did Meriwether begin recruiting employees he had worked with at the Arbitrage Group?

(see the answer keys)

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