1.How many of the following statements concerning the capital structure in a securitization are most likely correct?
　　I. The mezzanine tranche is typically the smallest tranche size.
　　II. The mezzanine and equity tranches typicaUy offer fixed coupons.
　　III. The senior tranche typically receives the lowest coupon.
　　A. No statements are correct.
　　B. One statement is correct.
　　C. Two statements are correct.
　　D. Three statements are correct.
　　2.Identify the risks in a convertible arbitrage strategy that takes long positions in convertible bonds hedged with short positions in treasuries and the underlying stock.
　　A. short implied volatility
　　B. long duration
　　C. long stock delta
　　D. positive gamma
　　3.Investors should insist on learning about the positions of hedge funds because
　　A. They want to trade ahead of the hedge fund
　　B. They do not understand the trading strategies behind the positions.
　　C. They want to aggregate the risk ofhedge funds with the rest of their portfolio.
　　D. They receive the information from the prime broker anyway.
　　Answer:
　　1.B
　　Senior tranches are perceived to be the safest, so they receive the lowest coupon. The equity tranche receives residual cash flows and no explicit coupon. Although the rnezzanine tranche is often thin, the equity tranche is typically the thinnest slice.
　　2.D
　　This position is hedged against interest rate risk, so B is wrong. It is also hedged against directional movements in the stock, so C is wrong. The position is long an option (option to convert the bond into the stock) and so is long implied volatility, so A is wrong. Long options positions have positive gamma.
　　3.C
　　Risk aggregation is an important reason for investors to leam about the positions of their investment in hedge funds. Answer A is incorrect because front-running the hedge fund would be
　　a reason not to disclose position information. Answer B is incorrect because not understanding the trading strategies would be a reason not to require position information. Answer D is incorrect because investors do not receive position information from the prime broker.