The difference between an arithmetic average and a geometric average of returns:

• A.increases as the variability of the returns increases.
• B.depends on the specific returns being averaged, but is not necessarily sensitive to their variability.
• C.increases as the variability of the returns decreases.

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Out of the last 154 times that the interest rates have been cut, the stock price of Company XYZ dropped 72 times. The probability that company XYZ's stock drops at the next rate cut is an example of what type of probability?

• A.relative frequency or empirical
• B.classical or a priori
• C.subjective

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Assume that you are analyzing a plain vanilla interest rate swap with the following characteristics:
Counterparty X : Counterparty Y pay fixed rate 6% : pay floating rate LIBOR + 0.5% receive floating rate
LIBOR + 0.5% : receive fixed rate 6% Swap tenor: 10 years Notional principal: $1,000,000 LIBOR0:
4 .75%
If this were an "in-advance" swap, Counterparty X would make its first fixed rate payment at the time the swap is negotiated. The amount of the payment would be:

• A.$60,000
• B.$52,500
• C.$57,279.24

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An investor buys shares of ABC Corp. at $30 and immediately writes a call on them. If the call carries a premium of $2.5 and its exercise price is $30, at what price of ABC shares will this investor break-even?

• A.$27.50.
• B.$32.50.
• C.Call options cannot have a negative value, therefore, there is no break-even point.

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An 8%, 20-year corporate bond is priced to yield 9%. The Macaulay duration for this bond is 8.85 years. Given this information, the bond's modified duration is:

• A.8.12
• B.8.51
• C.8.47

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