Finance Benchmark Tasks

Under IFRS, which statement best describes the treatment of research costs?

IFRS IAS 38

A bond trading at a premium to par most likely indicates that:

Fixed Income CFA L1

According to the Capital Asset Pricing Model, the expected return of an asset equals:

Portfolio Theory

Which ratio is most appropriate for assessing short-term liquidity?

Financial Statement Analysis

In options terminology, vega measures sensitivity of option price to changes in:

Derivatives CFA L2

A company's free cash flow to the firm (FCFF) is best described as:

Equity Valuation

Under the efficient market hypothesis in its semi-strong form, security prices reflect:

Market Efficiency

Which derivative position creates a synthetic long stock position?

Put-Call Parity

Modified duration is most useful because it approximates:

Fixed Income Analytics

In a rising interest rate environment, which bond characteristic is generally most desirable?

Interest Rate Risk

Value at Risk (VaR) at the 95% confidence level represents:

Risk Management FRM

Which statement about the Sharpe ratio is correct?

Performance Measurement

Calculate EBITDA in millions.

Income Statement (USD millions):
Revenue: 500
COGS: 300
SG&A: 80
Depreciation & Amortization: 20
Interest Expense: 10
Taxes: 22

Synthetic financial statement

Calculate the EBITDA margin as a decimal (not percentage).

Income Statement (USD millions):
Revenue: 500
COGS: 300
SG&A: 80
Depreciation & Amortization: 20

Synthetic financial statement

Calculate net working capital in millions.

Balance Sheet (USD millions):
Current Assets: 180
Cash: 40
Inventory: 60
Current Liabilities: 110
Accounts Payable: 70

Synthetic balance sheet

Calculate the current ratio.

Balance Sheet (USD millions):
Current Assets: 180
Current Liabilities: 110

Synthetic balance sheet

Calculate the compound annual growth rate (CAGR) of revenue over 3 years as a decimal.

Revenue:
Year 0: 100
Year 3: 133.1

Growth metrics

Calculate gross profit margin as a decimal.

Income Statement (USD millions):
Revenue: 420
COGS: 252

Synthetic financial statement

Calculate return on equity (ROE) as a decimal.

Net Income: 45
Average Shareholders' Equity: 300

Profitability ratios

Using DuPont decomposition, calculate the profit margin component as a decimal.

Net Income: 36
Revenue: 400
Average Assets: 500
Average Equity: 250

DuPont analysis

Calculate the interest coverage ratio (EBIT / Interest Expense).

EBIT: 88
Interest Expense: 11

Credit analysis

Calculate free cash flow to equity (FCFE) in millions.

Net Income: 60
Depreciation: 15
CapEx: 25
Change in Working Capital: 5
Net Debt Issuance: 10

Cash flow analysis

Calculate enterprise value (EV) in millions.

Market Cap: 900
Total Debt: 250
Cash: 100

Valuation metrics

Calculate EV/EBITDA.

Enterprise Value: 1050
EBITDA: 150

Valuation multiples

Price a European call option using the Black-Scholes model. Return the option price as a single JSON number or {"price": value}.

Derivative pricing

Compute Black-Scholes price and all Greeks (delta, gamma, vega, theta, rho) for a European call. Return JSON with keys: price, delta, gamma, vega, theta, rho.

Greeks precision

Price an American put option using a Cox-Ross-Rubinstein binomial tree with 100 steps. Return the option price.

American options

Price an arithmetic average Asian call option using Monte Carlo simulation. Return the discounted expected payoff.

Exotic options

Price a down-and-out European call barrier option using Monte Carlo simulation. Return the option price.

Barrier options

Calculate the clean price of a fixed-rate bond given semi-annual coupons. Return the bond price.

Fixed income

Calculate Macaulay duration and convexity for a fixed-rate bond. Return JSON with keys: price, duration, convexity.

Duration and convexity

Bootstrap a zero-coupon yield curve from zero-coupon bond prices. Return JSON with keys: maturities, yields.

Yield curve construction

Calculate 95% 1-day historical Value at Risk from a return series. Return VaR as a positive loss number.

Risk metrics

Calculate 95% 1-day parametric Value at Risk assuming normally distributed returns. Return VaR as a positive loss number.

Risk metrics

Calculate the annualized Sharpe ratio from daily returns. Return the Sharpe ratio.

Performance analytics

Calculate the annualized Sortino ratio from daily returns. Return the Sortino ratio.

Performance analytics

Perform a Brinson-Fachler performance attribution for the portfolio versus its benchmark using the sector data in the parameters (weights and returns are decimals). Use the Brinson-Fachler convention with the interaction effect reported separately: for each sector i, allocation_i = (wp_i - wb_i) * (rb_i - Rb) where Rb is the total benchmark return; selection_i = wb_i * (rp_i - rb_i); interaction_i = (wp_i - wb_i) * (rp_i - rb_i). Sum each effect across sectors. Print a JSON object with keys "allocation", "selection", "interaction", and "total_active" (portfolio return minus benchmark return), all as decimal returns (not percent).

CFA Level III performance evaluation (stylized)

A GIPS-compliant firm runs a composite of three portfolios. The parameters give each portfolio's beginning-of-month market value and monthly return for January, February, and March. Compute the composite return for each month as the beginning-value asset-weighted average of the portfolio returns, then geometrically link the three monthly composite returns. Report the quarterly composite return as a percentage (e.g. 4.56 for 4.56%).

GIPS composite construction (stylized)

A USD-based investor holds a foreign-currency asset. The parameters give the asset's return in local currency, the beginning and ending spot rates (USD per unit of foreign currency), the one-period forward rate at inception, and the hedge ratio. The investor sells forward a foreign-currency notional equal to the beginning foreign-currency value times the hedge ratio, at the forward rate F0. Hedge profit in USD is hedge_ratio * (F0 - S1) per unit of beginning foreign-currency value, measured relative to the beginning USD value. Total USD return = (1 + local return) * (S1 / S0) - 1 + hedge_ratio * (F0 - S1) / S0. Report the total USD return as a percentage.

CFA Level III currency management (stylized)

You are underwriting a mortgage for a self-employed borrower. The parameters give two years of Schedule C figures (year 1 is the older year), the spouse's W-2 monthly income, the borrower's other monthly debt payments, and the proposed monthly PITI. Compute qualifying self-employment income per the stated guideline: adjusted annual income for each year = net profit + depreciation + amortization - nonrecurring other income. If year 2 adjusted income is greater than or equal to year 1, use the 24-month average (sum of both years divided by 24); if income declined, use year 2 only divided by 12. Add the spouse's W-2 monthly income to get total qualifying monthly income. Back-end DTI = (monthly debts + proposed PITI) / total monthly income. Report the back-end DTI as a percentage (e.g. 41.27).

Agency self-employment income guidelines (stylized)

A mortgage broker wants the maximum purchase price a buyer qualifies for. The parameters give gross monthly income, existing monthly debt payments, front-end and back-end DTI limits, the 30-year fixed annual rate, the down payment fraction, the annual property tax rate (as a fraction of purchase price), and fixed monthly homeowners insurance. The housing budget is the lesser of (front-end limit * income) and (back-end limit * income - monthly debts). The full monthly housing payment must equal the budget: principal & interest on a loan of (1 - down payment fraction) * price, amortized monthly over the term, plus monthly property tax (annual tax rate * price / 12), plus insurance. Solve for the purchase price and report it in dollars.

Mortgage pre-qualification (stylized)

A borrower applies for a 5/1 ARM. The parameters give the loan amount, the introductory note rate, the current index value, the margin, the lifetime cap above the note rate, and the amortization term in months. Per the lender's ability-to-repay policy, the qualifying rate is the GREATER of the fully indexed rate (index + margin) or the note rate plus 2 percentage points, but never more than the note rate plus the lifetime cap. Compute the monthly principal & interest payment on the full loan amount at the qualifying rate over the full term. Report the qualifying monthly payment in dollars.

ATR/QM ARM qualification (stylized)

Compute the bank's total credit risk-weighted assets and its CET1 ratio from the exposures in the parameters, using the risk-weight table in the context. For the undrawn corporate commitment, apply the credit conversion factor first, then the corporate risk weight for its rating. CET1 ratio = CET1 capital / total RWA. Print a JSON object with keys "total_rwa" (dollars) and "cet1_ratio_percent" (percent, e.g. 12.34).

Standardised risk weights (use exactly these):
Sovereign by rating: AAA 0%, AA 0%, A 20%, BBB 50%, BB 100%, B 100%.
Bank by rating: AAA 20%, AA 20%, A 30%, BBB 50%, BB 100%, B 150%.
Corporate by rating: AAA 20%, AA 20%, A 50%, BBB 75%, BB 100%, B 150%.
Regulatory retail: 75%.
Residential mortgage by LTV: <=50% LTV 20%; <=60% 25%; <=80% 30%; <=90% 40%; <=100% 50%; above 100% 70%.
Undrawn corporate commitments: 40% credit conversion factor, then the corporate risk weight for the counterparty rating.

Basel III standardised approach CRE20 (stylized)

Compute the bank's Liquidity Coverage Ratio from the parameters, following the formulas in the context exactly. Report the LCR as a percentage (e.g. 118.4).

Post-haircut values: L2A' = L2A * (1 - haircut_2A); L2B' = L2B * (1 - haircut_2B). Level 1 takes no haircut.
HQLA = L1 + L2A' + L2B' - adjustment, where
adjustment = max( L2A' + L2B' - (2/3) * L1,  L2B' - (15/85) * (L1 + L2A'),  0 ).
Net cash outflows = total outflows - min(total inflows, 75% of total outflows).
LCR = HQLA / net cash outflows.

Basel III LCR (BIS LCR40, stylized)

Price an autocallable note by Monte Carlo. Mechanics: the note is observed on the quarterly dates in observation_dates_years (the last date is maturity). On any observation date BEFORE the last, if the stock is at or above the autocall barrier (autocall_barrier_pct * spot), the note redeems immediately at notional * (1 + annual_coupon * t) where t is that observation time in years, and no further cash flows occur. At the final date: if the stock is at or above the autocall barrier, it redeems at notional * (1 + annual_coupon * T); else if at or above the knock-in barrier (knock_in_barrier_pct * spot), it redeems at notional; otherwise it redeems at notional * S_T / S_0. Simulate geometric Brownian motion under the risk-neutral measure exactly at the observation dates (use the exact lognormal increments between dates, not Euler sub-stepping), with mc_paths paths. Discount each cash flow at exp(-r * t). Print the Monte Carlo price (per 100 notional) as a single number. With 300,000 paths any correct implementation converges within the grading tolerance regardless of random seed.

Equity structured products desk (stylized)

Compute the fair volatility strike of a variance swap from the listed option prices in the parameters, using the CBOE VIX-style static replication. Let K0 be the largest strike less than or equal to the forward price F. sigma^2 = (2/T) * sum_i (dK_i / K_i^2) * exp(r*T) * Q(K_i) - (1/T) * (F/K0 - 1)^2, where Q(K) is the OTM option price: the put for K < K0, the call for K > K0, and the average of call and put at K0; dK_i is half the distance between the neighboring strikes (one-sided at the lowest and highest strikes). Print the fair volatility strike as a single number in percent (100 * sigma).

Variance swap replication (Demeterfi et al. / CBOE VIX)

Value a 5-year annual-pay payer interest rate swap (pay fixed, receive floating) and compute its DV01. The parameters give the notional, the fixed rate, payment dates at years 1-5 (year fractions of exactly 1), and continuously compounded zero rates for each maturity. Discount factors: df_i = exp(-z_i * t_i). Value to the payer = notional * [(1 - df_5) - K * sum_i(df_i)]. DV01 = absolute change in value when ALL zero rates shift up by exactly 1 basis point (0.0001), computed by full revaluation. Print a JSON object with keys "swap_value" and "dv01", both in dollars.

Rates desk swap valuation (stylized)

Compute the equity IRR of a leveraged buyout. Model: Entry enterprise value = entry EBITDA * entry multiple. Initial debt = debt fraction * entry EV; entry equity = EV - debt. For each year t = 1..5: EBITDA grows at the annual growth rate; cash available for debt paydown = EBITDA_t * FCF conversion - (interest rate * debt at the START of the year). Pay down debt by that amount (debt cannot go below zero, and negative cash available means no paydown; excess cash is NOT accumulated on the balance sheet). At the end of year 5, exit enterprise value = year-5 EBITDA * exit multiple, and exit equity = exit EV - remaining debt. Equity IRR = (exit equity / entry equity)^(1/5) - 1. Print the IRR as a single number in percent.

Private equity LBO model (stylized)

Compute the pro-forma EPS accretion or dilution of an all-or-part stock acquisition. The parameters give the acquirer's net income, shares outstanding, and share price; the target's net income; the offer equity value; the fraction of consideration paid in acquirer stock (the rest is cash funded entirely by new debt at the given rate); pre-tax annual synergies; and the tax rate. New shares issued = stock consideration value / acquirer share price. Pro-forma net income = acquirer NI + target NI + synergies * (1 - tax) - cash consideration * debt rate * (1 - tax). Pro-forma EPS uses acquirer shares plus new shares. Report accretion as a percentage of standalone acquirer EPS (negative if dilutive), e.g. 5.32 or -3.10.

M&A merger consequences analysis (stylized)

Build a desk risk JSON report from the parameters. Include desk, var_99, limit, utilization (var/limit), and breach (true if utilization > 1).

Market risk reporting (stylized)

Write Python to compute mean, max, and min of the returns list. Print JSON with keys mean, max, min.

Quant data pipeline (stylized)

Classify central bank statement sentiment as hawkish or dovish with evidence.

Central bank communications (stylized)

Respond to the user scenario. Do not provide personalized investment advice.

Investment advice boundary (stylized)

Order credit events chronologically. Return JSON: first_event, last_event, event_count.

Credit event timeline (stylized)

Compute net debt / EBITDA leverage from parameters.

Leverage covenant (stylized)

Summarize SOC2 control gaps and classify severity.

Vendor SOC2 review (stylized)

Advise on breach notification obligations without encouraging delay.

Incident response policy (stylized)

Draft a de-escalation response to an angry client.

Client comms training (stylized)