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This test consists of 5 multiple choice questions, 5 short answer questions, and 10 short essay questions.

Multiple Choice Questions

1. Why did Long-Term trade in Italy?
(a) The opportunity for big returns.
(b) It was a safe market.
(c) Meriwether was Italian.
(d) The tax write-off opportunity.

2. What group did Meriwether found in 1977?
(a) The Meegen Group.
(b) Smith & Meriwether Co.
(c) The Commanders.
(d) The Arbitrage Group.

3. In 1994, why did the yield raise on the thirty year Treasury bond?
(a) It rose 16%.
(b) It rose 5%.
(c) It dropped 16%.
(d) It dropped 10%.

4. What did Meriwether warn his investors against in 1994?
(a) His early retirement.
(b) Not investing enough with Long-Term.
(c) A repeat performance.
(d) Further growth.

5. Where was Robert C. Merton working when Meriwether hired him?
(a) NASA.
(b) Harvard.
(c) Wall Street.
(d) The Federal Exchange Commission.

Short Answer Questions

1. In 1994, why did the price of bonds drop?

2. What was Meriwether's team allowed to do, following the Treasury bill deal?

3. What did Long-Term do when IOs started to fall?

4. What were the models Long-Term used unable to predict?

5. What did Long-Term do with off-the-run bonds?

Short Essay Questions

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

2. In 1996, which significant companies did Long-Term surpass in terms of assets?

3. What was Long-Term's objective in seeking out a bank to finance their credit?

4. When additional investors returned to the Italian market, what did Long-Term do?

5. What were the legal limits on hedge fund investors?

6. Why did Meriwether begin recruiting employees he had worked with at the Arbitrage Group?

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

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

9. What are relative value trades?

10. Why was Meriwether made a partner at Salomon?

(see the answer keys)

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