SOA EXAM IFM 2025/2026 QUESTIONS
AND ANSWERS
Determine which of the following is the most likely NOT a typical feature of convertible
preferred stock.
A
Guarantee on initial investment
B
Anti-dilution protection
C
Board membership
D
Participation rights
E
Liquidation preference - ANS A
Long Floor - ANS Buy Stock, Buy Put -> Guarantees minimum selling price
Written Covered put - ANS Short stock, short put -> guarantees max loss
Long Cap - ANS Long Stock, short call -> guarantees max purchase price
1 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
,Written Covered Call - ANS Buy Stock, Short Call
Bull Spread - ANS Long Call K1 Short Call K2 K1 < K2 can be done with puts too
Bear Spread - ANS Short Call K1 Long Call K2 K1 < K2 can be done with puts too
Long Box Spread - ANS Long Call Bull and Long Put Bear -> can flip call and put and can short
to get same result
Ratio Spread - ANS Long X calls K1 and Short Y calls K2. Doesn't matter what K1, K2, X, Y are
Long Collar - ANS Long Put K1, Short Call K2 K1 < K2
Collared Stock - ANS Long Put K1, Short Call K2, Long Stock
S&P 500 multipliers for forward contracts - ANS 250
Determine which of the following statements regarding capital structure in a perfect capital
market is FALSE.
A
The relative proportions of debt, equity, and other securities that a firm has outstanding
constitute its capital structure.
B
The total value of a firm's securities is equal to the book value of the total cash flows generated
by its assets.
C
The cost of issuing equity is zero.
D
2 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, Firms with identical assets but different amounts of debts have the same value.
E
The cost of capital of levered equity increases with the firm's market value debt-to-value ratio
in a non-linear manner. - ANS B
Straddle - ANS Long Call Long Put same K
Strangle - ANS Long Call K2 Long Put K1 K2 > K1
Ways to Create a Butterfly Spread - ANS Long Call K1, Long Call K3, Short 2 Calls K2
Long Put K1, Long Put K3, Short 2 Puts K2
Long Bull, Long Bear same option type
Long Strangle, Write Straddle
Cash and Carry vs Reverse Cash and Carry - ANS Real forward overpriced, short forward, long
stock with borrowed money (buy call sell put at K)
Real forward underpriced, long forward, short stock and lend money (sell call and buy put at K)
Futures vs Forwards (6 diffs) - ANS Traded on exchange
Standardized size, exp, underlying
More liquid
Marked-to-market
3 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
AND ANSWERS
Determine which of the following is the most likely NOT a typical feature of convertible
preferred stock.
A
Guarantee on initial investment
B
Anti-dilution protection
C
Board membership
D
Participation rights
E
Liquidation preference - ANS A
Long Floor - ANS Buy Stock, Buy Put -> Guarantees minimum selling price
Written Covered put - ANS Short stock, short put -> guarantees max loss
Long Cap - ANS Long Stock, short call -> guarantees max purchase price
1 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
,Written Covered Call - ANS Buy Stock, Short Call
Bull Spread - ANS Long Call K1 Short Call K2 K1 < K2 can be done with puts too
Bear Spread - ANS Short Call K1 Long Call K2 K1 < K2 can be done with puts too
Long Box Spread - ANS Long Call Bull and Long Put Bear -> can flip call and put and can short
to get same result
Ratio Spread - ANS Long X calls K1 and Short Y calls K2. Doesn't matter what K1, K2, X, Y are
Long Collar - ANS Long Put K1, Short Call K2 K1 < K2
Collared Stock - ANS Long Put K1, Short Call K2, Long Stock
S&P 500 multipliers for forward contracts - ANS 250
Determine which of the following statements regarding capital structure in a perfect capital
market is FALSE.
A
The relative proportions of debt, equity, and other securities that a firm has outstanding
constitute its capital structure.
B
The total value of a firm's securities is equal to the book value of the total cash flows generated
by its assets.
C
The cost of issuing equity is zero.
D
2 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
, Firms with identical assets but different amounts of debts have the same value.
E
The cost of capital of levered equity increases with the firm's market value debt-to-value ratio
in a non-linear manner. - ANS B
Straddle - ANS Long Call Long Put same K
Strangle - ANS Long Call K2 Long Put K1 K2 > K1
Ways to Create a Butterfly Spread - ANS Long Call K1, Long Call K3, Short 2 Calls K2
Long Put K1, Long Put K3, Short 2 Puts K2
Long Bull, Long Bear same option type
Long Strangle, Write Straddle
Cash and Carry vs Reverse Cash and Carry - ANS Real forward overpriced, short forward, long
stock with borrowed money (buy call sell put at K)
Real forward underpriced, long forward, short stock and lend money (sell call and buy put at K)
Futures vs Forwards (6 diffs) - ANS Traded on exchange
Standardized size, exp, underlying
More liquid
Marked-to-market
3 | Page @COPYRIGHT 2025/2026 ALLRIGHTS RESERVED
