1.

The yields to maturity for bonds paying coupons annually are presented in the table

Time to maturity 1 2 3
YTM 4,0% 4,5% 5,0%
All bonds are sold at par, which is PLN 100 for each. What should be the value of the 3 year zero-coupon spot rate if the market
is efficient?
A) 15,8753%
B) 4,5110%
C) 5,0341%

Explanation: Bond at par – price equal to par value, coupon rate equal to YTM.

2. Current stock price is PLN 56; during two 2-month periods it may rise or fall by 16%. The risk- free rate is 9% on the annual
basis (continuous compounding). What is the price of the stock if the exercise price is PLN 40, and the option expires in 4
months?
A) 17,85
B) 17,02
C) 17,28
D) 17,54

3. There are two bonds, A and B, with the same YTM, par value and time to maturity. Bond A pays coupons annually and B is a
zero-coupon one. Credit risk is neglected in both cases. Both bonds are sold at 975. Which of the following sentence is not
true:
A) Such a situation is rather unlikely in an efficient market.
B) Value of the bond B is more sensitive to small changes in YTM than value of A bond. TRUE
C) Value of the bond A is more sensitive to small changes in YTM than value of B bond.
D) Convexity of the bond A is lower than convexity of B.

4. There are two bonds, A and B, with the same YTM, par value and time to maturity but different coupon rates. Bond A is sold
at 970 and bond B at 975. Both of them pays coupons annually. Credit risk is low and may be neglected in both cases. Which
of the following sentence is not true:
A) Coupon rate of B is higher.
B) Value of the bond B is more sensitive to changes in YTM.
C) Value of the bond A is more sensitive to changes in YTM.
D) Convexity of the bond A is higher than convexity of B.

5. An investor does not expect any changes of the yield curve. The curve is decreasing over the horizon is 5 years. Which of the
following strategies should he choose.
A) Buying a 3 year fixed interest bond sold at par and then a 2 year fixed interest bond sold at par.
B) Buying a 5-year fixed interest bond sold at par.
C) Buying a 10-year fixed interest bond, sold at par, and selling it 5 years before the maturity.
D) Concentrate on bonds with the shortest and the longest maturity (barbell) or Depending on the spread between short and
long term interest rates.

6. Theoretical forward price is not equal to theoretical price of future with a random interest rate.

7. Which statements about subscription right are true?

I. Valuation of subscription rights before the date of determination of subscription rights is used to determine whether they
are undervalued, overvalued or well priced. FALSE
II. Subscription rights are hypothetical financial instruments, which are actually just rights embedded in the shares of the old
issue of shares. FALSE
III. Before the start of trading shares of a new issue, and after their assignment, rights to shares are converted into the right
to a new issue. TRUE
IV. After assimilation, the shares of the old and the new issue differ only in the theoretical value of subscription rights. TRUE
V. Once the subscription rights are established, the share price decreases. TRUE
8. Which of the following factors does not influence value of European stock option:
A) Volatility of underlying instrument returns.
B) Interest rates in the market.
C) Expected value of underlying instrument returns.
D) Price of the underlying.

9. Which of the following sentence regarding Black-Scholes pricing formulas deviation is not true:
A) The concept utilizes properties on instantaneous retunes (over infinitesimally short sub- period) on a risk- free portfolio
composed of an option and an opposite position in stocks.
B) The concept uses Ito lemma with respect to instantaneous increment of option value, basing on the assumption that
underlying stock price follows an Ito process.
C) The concept is based on the fact that portfolio composed of long position in a call option and short position is delta
underlying stocks is always risk-free for an investment horizon matching option expiration date.
D) The concept utilizes the fact that geometric Brownian motion is an Ito process.

10. Estimators of which parameters are risk factors in the Black-Scholes model:
A) the expected value and standard deviation of the rate of return from primary (underlying) instrument
B) the variance of the rate of return from primary (underlying) instrument
C) the risk premium and variance of the risk-free rate
D) only the risk premium

11. To the assumptions of Black-Sholes Model belong:

A) Assumption that there is no risk-free arbitrage possible on the market.
B) Assumption that stock prices are normally distributed.
C) Assumption that rates of return on stock are log-normally distributed (their natural logarithms are normally distributed).
D) None of the above.

12. Which of the following question is not true:

A) Credit linked note is a tool for hedging against default of a counterparty, rather than lowering its creditworthiness. TRUE
B) Credit linked note is a kind of credit default derivatives in which the party buying debt instrument with embedded option
is a buyer of the protection. FALSE (is a seller not buyer)
C) Credit linked note is a kind of credit default derivatives in which the party selling debt instrument with embedded option is a
buyer of the protection. TRUE

13. Which of the following question is not true:

A) The Borrower expecting interest rate to increase would be interested in using a swap contract which convert variable
interest rates into fixed one.
B) Lender expecting interest rate to decrease will be interested in using a swap contract which convert variable interest rates
into fixed one.
C) Entering into interest rate swap might make sense, both the difference in comparative advantage exceeds the bid-ask
spread, as well as in the reverse situation conclusion of the swap, but the targets in these two cases are different
D) Position in the swap contract on his part, which receives fixed interest rate in return for interest at a variable rate can be
measured as a portfolio composed of the acquired fixed-rate bonds and opposite position in fixed rate bonds.

14. Which of the following questions is not true:

A) In binomial model stock price is 20 and it could go up or down by 10%. If the risk-free rate is 0%, then martingale probability
is 0,5.
B) Put option is having negative delta before maturity.
C) When portfolio consists of X stocks, delta coefficient of such a portfolio equals to 1/X.
D) With Black-Scholes-Merton model – the higher the dividend the higher the price of put option should be.

15. How many call options should be written to make a portfolio containing 12 shares (long positions) and a short position in the
options free of market risk. The exercise price of the option is 50,00zł and the stock price may rise to 55zł or fall to 45zł at the
end of investment horizon.
A) 12 B) 36 C) 5 D) 24
16. How many call options should be written to make a portfolio containing 12 shares (long positions) and a short position in the
options free of market risk. The exercise price of the option is 50,00zł and the stock price may rise to 52,2zł or fall to 37,8zł at
the end of investment horizon (round any sub results to at least four decimal points)?
A) 79 B) 39 C) 53 D) 48

17. Price of the shares on the GPW (stock exchange) = PLN 35. How much is worth a put option with a strike price PLN 35, if
quarter remained until the expiry date and the risk-free rate is 8%? We assume that for the 1st quarter stock price can be
PLN 37 or PLN 30.
A) PLN 3,99 B) PLN 0,9 C) PLN 0,36 D) None of the above.

So = 35; K = 35; T = 0,25; r = 8%; Su = 37; Sd = 30

u = Su/So = 37/35 = 1,0571 max{35-37;0} = 0 d = Sd/So = 30/35 = 0,8571 max{35-30;0} = 5
rT
P* = (e – d)/(u-d) = 0,8155067; 1-P = 0,1844933 Co = (0*0,8155067 + 5*0,1844933)*e-8%*0,25 = 3,99

18. Market price is PLN 100. Last paid dividend was PLN 2.8. What is the required rate of return if we assume Gordon Growth
model with a constant dividend growth equal to 5%?
A) 9% B) 6% C) 11% D) 8%

P = 100; D0 = 2,8; g = 5%; D1 = 2,94 r = (D1/P0) + g r = (2,94/100) + 0,05 = 7,94%

19. The company that ends activities will pay a dividend of PLN 5 per share in one year, PLN 6 per share in 2 years and in three
years as a result of the division of property of the company, each shareholder will receive PLN 15 per share. How much is
worth a share of the company, if the required rate of return is 15% and the risk-free rate is 5%?

A) PLN 18,75 B) PLN 21,16 C) PLN 16,30 D) PLN 21,56

D1 = 5; D2 = 6; D3 = 15; re = 15%; rf = 5%
Po = D1/(1+re)^1 + D2/(1+re)^2 + D3/(1+re)^3 Po = 5/(1+15%)^1 + 6/(1+15%)^2 + 15/(1+15%)^3 = 18,74 PLN

20. The yield curve is decreasing. The annual interest rate is 5%, three-year is 4,5% and five-year is 4% (all expressed on an
annual basis). It is expected that the yield will not change the curve shape or level . Which of the two investment should the
investor choose?

• Investment 1 : the purchase of three-year bonds paying interest once a year with a nominal value of 100, sold at par and
keep them until maturity
• Investment 2 : the purchase of five-year bonds paying interest once a year with a nominal value of 100 , sold at par and
resell them after three years.
 SPOT1 = 5%; SPOT3 = 4.5%; SPOT5 = 4%

Investment 1 : annual interest = 4.5 %  “at par” means c = YTM so the return on investment will be 4.5%

Investment 2: c = 4%; the value of the bonds resell in year 3 = the sum of the interest in first and second year reinvested after
the installment of 4.5%, the investment in the third year and the sum of the discounted interest in fourth and fifth year by
forward rate ( 3F2 - for three years lasting two years ) and nominal value in fifth year discounted also by 3F2.

3F2  (1+4 %)^5 = (1+4.5%)^3 * (1+3F2)^2 3F2 = 3.2544821%

The value of bonds in year 3: 4 * (1 +4.5%)^2 + 4 * (1 +4.5%)^1 + 4 + 4/(1 +3.25 %)^1 + 104/(1 +3.25 %)^2 = 113.97
Return on investment = > y = ( 113.97/100)^(1/3)-1 = 4.455039 % - almost the same as in investments 1
A) The investment 1.
B) The investment 2.
C) Investments 1 and 2 are equivalent.
D) It is not possible to answer the question, because 2-year forward rate is not known.

21. There is a flat yield curve of 4,5%. It is expected that after 1 year it will increase by 0,5%. There are two investments. The
first one is buying a 3-year bond that pays coupons annually with face value 100 and selling for par value. The second
alternative is to buy a 1-year zero-coupon bond that sells for 95,69 and face value 100 and then reinvesting all revenues in a
2-year bond paying coupons annually selling for par with face value 100. Which investment should be chosen?

Investment 1: coupons must be 4,5%, because the YTM at the moment of the bond purchase was 4,5%. After a year YTM
increased to 5%, so all coupons that the investor receives, he can reinvest at 5% until maturity. He invested 100 at the beginning,
so his return annualized would be: 4, 52125%

Investment 2: Coupons of the second bond will be 5%, because at the time the bond is bought the YTM is 5%. He invested in the
beginning 95,69, so his return annualized would be: 4, 8344%

Investment 2 gives higher return and it should be chosen.

22. If the futures price (K) is lower than future spot price (F), the investor:
A) Has the ability to arbitration, should sell short the primary instrument and invest the money at risk-free rate and buy
contract.
B) Has the ability to arbitration, should buy a primary instrument for borrowed funds and sell the contract.
C) Has the ability to arbitration, should buy a primary instrument for borrowed funds and buy the contract.
D) There is no arbitrage opportunities.

23. Company X just paid a dividend of PLN 11 per preference share as dividend (double dividend). Investors assume that for
next 3 years, the company will maintain a dividend growth rate of 10%. In the next seven years the dividend growth rate will
decrease linearly to 4% and will stabilize at this level. Assuming that the risk-free rate is 5%, and investments of similar risk scale
should bring 7% per year, the value of common shares of X must be:
A) PLN 234,80
B) PLN 487.60
C) PLN 221.63
D) None of the above
24. The recovery rate of the loan is 50%. Credit is granted for one year. What should be the cost of the loan if the value of
borrower's assets is 120 million and it is expected that it may rise to 138 million or decrease to 102 million during the year. The
risk-free rate is 5% and the capitalization is annual.

A) 126% B) 33,33% C) 26% D) 66,67%

so=120; su=138; sd=102; T=1; rf=5%; u=138/120=1,15; d=102/120=0,85; P*=(ert–d)/(u–d)=0,6709; PD=1–P*=0,3291

LGD = 1 – RR LGD = 1 – 50% = 50%
Credit spread r: [( LGD*PD ) / ( 1 – LGD*PD )] * ( 1+rf) [(50%*0,3291) / (1 – 50%*0,3291)] * (1+5%) = 20,68%
Credit cost = credit spread r + risk-free rate = 20,68% + 5% = 26%

25. The company has decided to issue new shares to existing shareholders. Each holder of four shares of series A, B or D
obtains the right to purchase three shares of the new issue. How much are worth subscription rights entitle to purchase one
share of the new issue before determining that right, if the market price is PLN 24, and the company has set the issue price of
the D shares at PLN 5?
A) PLN 8,14 - 8,15 C) PLN 14,18 - 14,29
B) PLN 10,84 - 10,86 D) none of the above

Subscription right valuation: SR = (Ps-Pe)/(N +1) Ps = 24; Pe = 5 SR = (24 - 5) / (1.33 + 1) = 8.15

N - the amount of old stocks to buy ONE allowing new stock  to buy one new stock - N = 4/3 = 1.33

26. There are two investments:

A) 52 week T-Bill with price 9500 and FV 10000
B) 26-week T-Bill with FV 10000 which will be reinvested after 26 weeks one more time for next 26 weeks. The expected
discount in 26 weeks will be 5,49%.
What should be the price of the second T-Bill ensuring that the return achieved from the second investment will be at least
the same as investment in 52 week T-Bill?

27. Average value of the P/E ratio from the last 4 years is 8,5. The return on equity realized in the last period is 8% and the book
value of equity at the beginning of that period was 25 000 000 PLN. There are 500 000 shares of that company in the
market. What is the value of one share, according to the multiplier model, at the beginning of the current period?
A) PLN 34
B) PLN 4
C) PLN 425
D) PLN 0,68

28. The risk-free rate is equal to 6% (annually) and the expected return on WIG amounts to 15%. Stocks of similar companies
operating in the same sector show on average 1,3 beta (against WIG). What is the value of one stock if the company has
17 712 895 common stocks, its last cash flow to the equity was 7 000 000, as calculated for the end of the last year, and it is
expected that both free cash flow and debt will be rising at the common and stable rate of 4% yearly?
A) 14
B) 30
C) 3
D) 5
29. Price in the Black-Scholes-Merton model a European put option on stock paying dividends under a stable dividend policy
with the retention ratio of 94%. The stock costs at present m.u 50. The annualized volatility of the stock is 30%, time to
expiration 3 months, exercise price m.u. 55, risk-free rate 4,5% (annual basis). Values of standard normal cdf are provided
in the table.
A) 1,18
B) 6,31
C) 5,78
D) 1,39

30. A company has paid a dividend of 5.00zł (per share) and it is planned to increase the dividend by 6% during the nearest year.
In subsequent years the following dividends will be paid: 6zł in two years, 8zł in three years and 4zł in four years. Then, a
constant growth at the rate of 7% annually is expected. Calculate the stock price if investment require a return of 9% yearly.
A) 237,92
B) 170,53
C) 232,92
D) 175,53

31. An investor holding a portfolio of zero-delta and gamma equals -3000 (or 3000) (coefficients of delta and gamma for options
included in this portfolio are respectively 0.62 and 1.5), wanting to bring the value of delta and gamma of this portfolio to 0
should:
A) sell 1240 option and buy 2000 units of the underlying asset,
B) sell 2000 option and buy 1240 units of the underlying asset, FOR 3000
C) buy a 2000 option and sell 1240 units of the underlying asset, FOR -3000
D) none of the above.

Wt + gamma T + gamma = 0; Wt – amount of options; gamma T - gamma for options, gamma - gamma in portfolio

32. Considering the model of free cash flows in the valuation of shares, point to the false statement:
A) The value of the stock always increases with the increase of retention index, when the rate of return of reinvested
retained earnings is higher than the cost of equity.
B) The model can be used when the dividend policy is not clearly defined
C) Debt servicing costs affect the value of the shares
D) Depreciation does not affect the value of the entire company (the total value of equity and debt)

33. Manufacturing company in Poland exports most of its production to Germany. It takes a loan in CHF at variable rate, and
there is no definite expectations about the direction of future changes of interest rate. The company includes a swap
contract, under which it will pay at the fixed rate in euro and received payments in CHF by variable rate. The conclusion of
this contract will:
A) only the possibility of obtaining the benefits of arbitration,
B) protection against currency risk and interest rate risk,
C) protection against the interest risk rate,
D) protection against currency risk.

34. American company has a subsidiary company in GB. This company produces on the UK market and mainly there supplies the
materials, but they have a loan in U.S. dollars at a fixed rate of interest. Which swap should choose the risk manager, if
authorities intend to protect the company's cash flows (not accounting income), while expecting decrease in interest rates
in the U.S. market and decrease in the UK:
 A) interest currency rate swap, which converts the interest in dollars at a fixed interest rate for the interest in pounds
at a variable interest rate of LIBOR +3 bps,
B) currency swap with a fixed rate, which converts interest in dollars in interest in pounds,
C) interest currency rate swap, which converts the interest in dollars at a fixed interest rate for the interest in dollars at
a variable interest rate of LIBOR +3 bps,
D) none of these swaps will reduce foreign exchange risk.

35. There are two investments:

-26-week T-Bill
-13-week T-Bill with discount rate 3,94% which will be reinvested into the next quarter.
It is expected that 13-week interest rate in 13-week will be equal present 13-week … and rate in 13 weeks, which
amounts to 4,95%. Par value is 1000 for all three bonds. What is the max price of a 26-week T-Bill (now) for which the
first investment (26-week T-Bill) is at least as profitable as the second.
A) 9478,67 B) 9780, 91 C) 9774,19 D) 9779,95

36. What position (long or short) and how many units of a put option on stock should be entered into the … a short-term
investment in portfolio of 1000 shares of 1 company free of market risk (apart from cost of hedging). In the exercise price of
the option is 50 and the stock price may rise to 52,2 or fall to 37,8.
A) 658 long B) 118 short C) 188 long D) 658 short

37. Five main factors may influence the price of an option, also called the premium:
A) The strike price of the option
B) The market price of the underlying asset
C) Volatility, the price uncertainty of the underlying asset
D) Remaining life (the time length until the expiry date)
E) The interest of a loan with a term similar to the option’s remaining life

38. The yield curve is increasing. What investment should an investor choose? If the yield curve is increasing, it is worth to buy
LONGER maturity bond and SELL it before maturity buy (5-year bond and sell it after 3 years).
39. The yield curve is flat. What investment should an investor choose? If the yield curve is flat, the return is the same.
40. Free Cash Flow Model needs:
A) cash flows related to earnings
B) dividend does not need to be related
C) free cash flows ARE positive

I don’t have task 7&9 from this picture (for 7 the answer is correct):