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1) On a certain day the highest temperature is 77 degrees and the lowest temperature is 61
degrees. What is the day's HDD?
A) 5
B) 12
C) 4
D) 0
Answer: D
2) On a certain day the highest temperature is 77 degrees and the lowest temperature is 61
degrees. What is the day's CDD?
A) 5
B) 12
C) 4
D) 0
Answer: C
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Copyright 2014 Pearson Education, Inc.
7) Which of the following describes a CAT bond?
A) Has a great deal of systematic risk
B) Has very little systematic risk
C) Has a moderate amount of systematic risk
D) Has negative systematic risk
Answer: B
9) Which of the following describes the period during which a "5 times 8" contract provides
electricity?
A) From 11pm to 7am on five successive days
B) From 8am to 4pm on five successive days
C) For any 5 hours of a day on 8 successive days
D) For any 8 hours of a day in five successive days
Answer: A
10) Which of the following describes the period during which a "5 times 16" contract provides
electricity?
A) From 7am to 11pm on five successive days
B) From 4pm to 8am on five successive days
C) For any 5 hours of a day on 16 successive days
D) For any 16 hours of a day in five successive days
Answer: A
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Copyright 2014 Pearson Education, Inc.
13) Which of the following is NOT seasonal?
A) Spot electricity
B) Spot natural gas
C) Electricity futures prices
D) Spot price of corn
Answer: C
15) Which of the following are least likely to use weather derivatives?
A) Energy producers
B) Food and drink manufacturers
C) Companies in the leisure industry
D) Automobile manufacturers
Answer: D
16) When a reinsurer covers the layer of hurricane losses for an insurance company between $20
million and $30 million, which of the following describes the insurance company's losses?
A) A bull spread on total hurricane losses
B) A bear spread on total hurricane losses
C) A long call option on total hurricane losses
D) A short put option on total hurricane losses
Answer: A
17) An August CDD weather option is offered on the cumulative monthly CDD at an Atlanta
weather station. An investor has a long call with a strike price of 375 and a short call with a
strike price of 400. The payment is $10,000 per degree day. What is the maximum payoff?
A) $500,000
B) $250,000
C) $100,000
D) $50,000
Answer: B
18) Which of the following is the average of CDD and HDD for a day?
A) The highest temperature during the day
B) The lowest temperature during the day
C) The average temperature during the day
D) None of the above
Answer: D
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Copyright 2014 Pearson Education, Inc.
19) Which of the following is the basis for calculating HDD and CDD?
A) The average temperature during the day
B) The average of the highest and lowest temperature during the day
C) The temperature at 12 noon during the day
D) None of the above
Answer: B
20) Which of the following might we expect to be the result of global warming?
A) An decrease in observed CDDs
B) An increase in observed CDDs
C) An increase in observed HDDs
D) None of the above
Answer: B
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Copyright 2014 Pearson Education, Inc.