Test yourself: Finance Practitioner Quiz: Valuation, Deals, Bonds and Derivatives

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Reading is one thing; recalling it under pressure is another. This exam has 20 questions that cut across every part of Capital Markets, from the basics to the mechanisms that connect them.

Answers are hidden until you click, each with a one-line explanation, so you can check yourself and see exactly which topics to revisit. Take it once cold, read the explanations, then try again a week later; most people are surprised by how much the second pass improves.

A sample of the questions (20 on the full page)

■A company expects free cash flow of $100 million in Year 5, growing 3% a year afterward, with a WACC of 8%. What is the Year 5 terminal value by the Gordon growth formula?

■An LBO buys a company for 8.0 times EBITDA of $100 million and finances it with $500 million of debt and $300 million of equity. After five years EBITDA is $130 million, the exit multiple is 8.0 times and debt has been paid down to $350 million. What are the money multiple and IRR?

■A three-year bond pays a 5% annual coupon and its yield rises to 6%. What is its price per $100 of face value?

■A bond has modified duration of 10 and convexity of 100. Using both terms, what is the approximate price change when its yield rises by 1 percentage point?

■A stock trades at $100 and the one-year risk-free rate is 5% (annual compounding). A European call and put share the same $100 strike and one-year expiry. Put-call parity says call minus put equals what?

■You are short 100 call options on one share each, and the delta of each call is 0.60. How many shares make the position delta-neutral?

■A portfolio holds two assets in equal weights, each with 20% volatility and a correlation of 0.5. What is the portfolio volatility?

■A fund returns 12% with 16% volatility while the risk-free rate is 4%. What is its Sharpe ratio?

■A fund’s annual return is 12%, the long-run mean return is 8% and the standard deviation is 10%. What is the z-score of that return?

■A $10 million portfolio has daily volatility of 1.2%. What is the one-day 95% parametric VaR under the normal distribution (z = 1.645)?

■A project costs $100 and returns $60 at the end of each of the next two years. At a 10% discount rate, what is its NPV?

■A stock has a beta of 1.2, the risk-free rate is 4% and the equity risk premium is 5%. What is the CAPM cost of equity?

■A firm is 60% equity at a 10% cost and 40% debt at a 6% pre-tax cost, with a 25% tax rate. What is its WACC?

■A target trades at $48 and the cash offer is $50, with closing expected in six months. What is the simple annualized merger-arbitrage spread?

■Spot EUR/USD is 1.10, the one-year US rate is 4% and the one-year euro rate is 2%. What one-year forward does covered interest parity imply?

■How does deferred tax asset recognition differ between US GAAP and IFRS?

■Which statement about say-on-pay is correct?

■Which law created the mandatory clearing obligation for standardized over-the-counter derivatives in the European Union?

■Who founded Long-Term Capital Management in 1994, with Myron Scholes and Robert Merton as partners?

■What does a three-scenario comparison with a flip point teach a practitioner?

Good to know

How to use the self-test: take it once cold, without notes, and commit to an answer before you reveal it. Then read each one-line explanation, even for the questions you got right, because the explanation is where the reasoning is.