Question 6

Equity Style Analysis: Equity style analysis was introduced by William Sharpe and finds its

visualization in the Morningstar Boxes. Regressing fund returns on style benchmarks would

enable the analyst to measure the funds implicit allocation to that style.

True

False

Question 7

Binomial and Black Scholes Option Pricing Model: The multi period approach to option pricing

is labeled the binomial model and with the use of continuously compounded mathematics, the

Black Scholes pricing formula can be derived. The Black Scholes model assumes a constant

volatility over the life of the option.

True

False

Question 8

Venture Capital Business Model: The successful venture capital portfolio model hinges on the

ability to find a home run, thereby generating a return that offsets the losses and the breakeven

positions. Roughly half of the portfolio positions are assumed to eventually fail.

True

False

Question 9

Long or Short Futures: The trader taking the long position commits to buying the commodity on

the delivery date while the trader taking the short position commits to selling.

True

False

Question 10

Futures Hedge Ratio: In general, the hedge ratio is the number of futures contracts one would

need to offset the risk of a particular unprotected position. Futures contracts could be used to

hedge interest rates, stock market indices, currency or commodity risk.

True

False