1.Matt James is assessing the performance of his portflio over the last four years.In computing the average return, he decides to use the geometric average retum since it provides a more conservative retum than the arithmetic mean. The annual retums on his portfolio over each ofthe last four years were 50%, 30%,-25%, and -15%. The geometic average return is then closest to:
　　A. 5.44%.
　　B. 5.59%.
　　C. 8.56%.
　　D. 10.00%.
　　2.When selecting between credit models, which ofthe following factors is least important?
　　A. That the model's parameter estimates are linear.
　　B. How easy the models are to understand.
　　C. How robust the models are when new data are added into the analysis.
　　D. The time to calibrate and recalibrate the model.
　　3.With regard to the factors that determine recovery rates of traded bonds, which of the following statements is false?
　　A. The liquidity of the debtor's collateral has an impact of recovery rates of the firm's traded bonds.
　　B. The presence of more bank loans increases the recovery rates of the firm's traded bonds.
　　C. The seniority of debtor's debt has an impact of recovery rates of the firm's traded bonds.
　　D. The value of the debtor's collateral has an impact of recovery mtes of the firm's traded bonds.
　　Answer:
　　1.B
　　gp =[(1.50)*(1.30)*(0.75)*(0.85)]^ 1/4-1=5.59%
　　2.A
　　It is important for models to be understandable, robust and able to be recalibrated. Models do not have to be linear. However, a researcher may wish to use an easily understood model, yet she may have to choose a model that is very complex and takes a long time to calibrate because it gives the most accurate results.
　　3.B
　　Seniority defines the order of priority of the claimants with respect to the assets when the firm defaults. The value and the liquidity of the collateral have an impact of recovery rates. Bank debt would actually decrease the recovery rates ofthe traded bonds, because bank debt tends to be senior and has the highest level of collateralization, the more bank financing a finn uses, the lower the recovery rate on the traded bonds.