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@David Harper CFA FRM - can you clarify what you interpret as the question's correct answer? It is a bit unclear to me and I suspect it may be to others as well. Thanks!

The question expcitlty asks for which of the options IS an assumption of B-S. D is clearly not an assumption of B-S. Since the price of a bond converges to pare at maturity, the volatility must diminish. THis is something that makes equilibrium models such as Cox Ingersoll and Vasicek...

The fact that we are looking at government bonds makes this a tricky question. When considering stocks, I think A and C would be considered assumptions of Black-Scholes. Stock Prices are assumed to normally distributed (recall the ln(St/S0) is assumed to be normal and so, St/So assumed to be...

We are talking about default correlation of the underlying assets. Equity value increases as correlation increases. The highest rated tranche, or senior tranche, is the opposite; as correlation increases, its value decreases. The mezzanine tranche can exhibit either behavior.

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YES!!! Please send an amazon code. Thanks Brian

These are good questions and not really beginner level questions. I would try to keep them in mind and continue your preparation. Many of the answers will come to you as you study.

Read the GARP readings and supplement them with the BT Notes, BT Videos, and BT Questions. If you had exposure to finance already, I would suggest the BT materials only, but you could benefit from the GARP readings as well. This is the approach I took....

This is a good question - read the assigned reading on binomial trees or the notes and it should provide an answer. Hint: There are two probabilities of an up move, the risk-neutral probability and the actual "true" probability.

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Oh man David - this is the good stuff!

Regarding the two positions, they are equivalent (I believe) as a result of put call parity for options on currencies. Recall Put-Call Parity is as follows: C(pounds, $, T) - P(pounds, $, T) = [ exchange rate (in $/pounds) ] * e^(r_pounds*T) - K * e^(r_dollars*T) where C(pounds, $, T)...

I never really understood this (delta-normal var) very well.

No one ever talks about the ghost effect of the post pass body of knowledge! I can't remember anything! :)

Not a typo! It is a good question. Var(aX+bY) = (a^2)var(X) + (b^2)var(Y) so we know the following as well. Var(aX-bY) = (a^2)var(X) + ((-b)^2)var(Y)

I haven't verified the calculations but the logic is sound.

Holy cow!!!!! @Deepak Chitnis - I never intended to dislike your post! Sorry about that!