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This test consists of 5 short answer questions, 10 short essay questions, and 1 (of 3) essay topics.

Short Answer Questions

1. Where was the Long-Term Capital Portfolio stored?

2. In bond trading, what are loans backed by collateral called?

3. What did Black and Scholes use to calculate market change?

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

5. Who did most funds have to be registered with?

Short Essay Questions

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

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

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

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

5. Why was Meriwether made a partner at Salomon?

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

7. How did Long-Term respond to firms that would not waive the fee for the haircut?

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

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

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

Essay Topics

Write an essay for ONE of the following topics:

Essay Topic 1

Write a brief essay supporting or refuting the following statement, citing examples from the text: Long-Term set out to be a low risk company and exemplified that mission for several years.

Essay Topic 2

There were many warning signs that the profits delivered by Long-Term couldn't last. Yet, many companies did everything possible to keep some investments going at higher and higher levels when they should have slowed. Using greed as a theme, analyze this situation.

Essay Topic 3

When Meriwether set up Long-Term, he had to take many steps to create the company. Write an essay examining the process Meriwether went through to create Long-Term.

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