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LOS o: Describe the various forms of event risk.
Q1. All of the following risks are types of event risk EXCEPT:
A) disaster/accident risk.
B) interest rate risk.
C) political risk.
Q2. Which of the following circumstances is an example of event risk?
A) The U.S. Federal Reserve unexpectedly increases interest rates by 100 basis points.
B) A bond's bid/ask spread widens.
C) A local government regulatory agency introduces more stringent clean-water requirements that will significantly reduce the cash flow of an area paper mill.
Q3. SBG Entertainment, an outdoor concert tour management company located in the northwestern United States, holds approximately 80 concerts per year. SBG recently hired Stuart Frye, CFA. Frye enters into the following cap contract: SBG will receive $100,000 for each rain event (defined as cancellation due to inclement weather) over 13 rain events (maximum payments of $1,000,000). The premium, or cost of this agreement, is $300,000. Given this information, which of the following statements is FALSE?
A) If there are 16 rain events next year, SBG will recoup its premium.
B) The cap contract reduces SBG's exposure to event risk.
C) SBG's maximum loss is the premium.
Q4. Kira Sigard, CFA and an attorney with an investment banking firm, structures a client’s bond issue to include a “poison put.” This is a provision that requires the issuer to redeem the bond at par in the case of a corporate takeover, a merger, or anti-takeover measure that would dissipate significant corporate assets. An investor who purchases this bond is protected from what type of risk?
A) Event Risk.
B) Liquidity Risk.
C) Call Risk.
Q5. Which of the following is NOT an example of event risk?
A) A corporation calls a large bond issue.
B) Ratings agencies downgrade a company's rating after the company takes on a significant amount of debt to fund a leveraged buy-out (LBO).
C) An interim South American government imposes restrictions on the outflow of capital.
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发表于 2009-3-2 16:07
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