8013 Certification Exam Guide + Practice Questions Updated 2026

Explanation:
The investor would benefit from the risk reversal and the bull spread as both these strategies have a payoff profile that benefit from rising prices of the underlying. The collar is the opposite of risk reversal, and benefits during a bear market, and the butterfly spread benefits when prices remain range bound. Therefore Choice 'c' is the correct answer.

Explanation:
The investor's needs to sell futures contracts, as his current position is long. He needs to sell ($1,000,000 x (2.5-1)) / ($240,000 x 1.2) = 5.2 contracts, or rounded to 5 contracts.
It is important to note here that the investor wishes to retain a beta of 1, and does not want to get rid of all market exposure.

Explanation:
The effectiveness of the hedge is solely determined by the correlation between the position being hedged, and the position being used as the hedge. A hedge can be perfect when correlation is 1, and will be less than perfect when it is anything other than 1.The effectiveness of the optimal hedge is given by the formula (1-2), where is the correlation between the two. Therefore Choice 'a' is the correct answer. Standard deviations affect the hedge ratio, not the effectiveness of the hedge.
(Note: In other texts, hedge effectiveness is explained to be measured by 2, which is essentially the same as (1-2), both expressions being functions of. You can use either, being aware that one measures the variance explained, and the other is a measure of the unexplained variance.)

Explanation:
The dates on which the interest rates applicable to the floating rate leg of an IRS are determined are called 'reset dates'. Choice 'c' is the correct answer, the other choices are incorrect. Settlement date is the date a transaction settles, normally a few days after the trade is done depending upon the market. Trade date is the date the terms of the transaction are agreed. (Settlement normally happens on T+n, where T is the trade date, and n the number of days to settlement as decided by agreement or market convention.)

Explanation:
Kappa indices, which include the Sortino ratio and the Omega statistic, consider semi-variance, ie variance calculated only in respect of the downside risk instead of variance (which includes both upside and downside). This is because one criticism of other risk adjusted performance measures is that they take both upside and downside risk into account, even though a portfolio manager or investor is only concerned with managing the downside. The Kappa indices consider returns that are below a threshold to measure performance by. Therefore statement I is correct.
The Treynor ratio is calculated as [(Portfolio return - Risk free return)/Portfolio's beta]. It therefore calculates the excess return per unit of systematic risk and not specific risk. Therefore statement II is not correct.
Increasing portfolio leverage, ie borrowing to invest more in the portfolio, will increase the excess return of the portfolio in a linear fashion. However, it will also increase the volatility of such a portfolio in an identical linear way. Since Sharpe ratio is the ratio of 'excess returns' to standard deviation, the Sharpe ratio will stay constant. In other words, leverage does not impact Sharpe ratio, which is an attribute of this measure that allows us to compare performance across managers and funds regardless of leverage used. Statement III is not correct.
Jensen's alpha results from security selection, ie from specific risk the manager has taken.
In a market portfolio, all specific risk is diversified away and only systematic risk remains.
Therefore, statement IV is correct.