2. a. b. d. 3. a. Other things being the same, which of the following is (are) correct, in general? Higher money supply leads to lower interest rate Higher budget deficit leads to lower interest rate Both of the above Neither a orb In general, which of the following is (are) correct (other things being the same)? The higher the credit/default risk of a security, the lower the yield b. The higher the liquidity risk of a security, the lower the yield Both of the above d. Neither a orb Under the pure expectations theory, an upward-sloping yield curve indicates: Expected lower interest rate levels Expanding economy Both of the above Neither a orb ud 4 a. b. d. 5. In general, which of the following is correct? a. As interest rates increase, T-bond price decreases and T-bond futures price increases b. As interest rates increase, T-bond price decreases and T-bond futures price decreases As interest rates increase, T-bond price increases and T-bond futures price increases d. As interest rates increase, T-bond price increases and T-bond futures price decreases 6. a. As a speculator, if you are expecting stock prices to increase, you will Take a short position in stock index futures and gain if the stock prices rise b. Take a short position in stock index futures and gain if the stock prices fall Take a long position in stock index futures and gain if the stock prices rise Take a long position in stock index futures and gain if the stock prices fall You want to get the right to buy a stock at a specified price until a specified date. This can be achieved by Selling a call option on the stock Selling a put option on the stock Buying a call option on the stock d. Buying a put option on the stock 7. a. b. C. 8. a. b. C. d. 9. Which of the following is most correct? Seller of an option has the right to buy/Sell and pays the premium to the buyer Seller of an option has the right to buy/Sell and receives the premium to the buyer Buyer of an option has the right to buy/Sell and pays the premium to the seller Buyer of an option has the right to buy/Sell and receives the premium to the seller Other things being the same, which of the following is (are) correct? The greater the strike/exercise price compared to the current market price of the underlying asset, the higher the premium on a put option The greater the strike/exercise price compared to the current market price of the underlying asset, the higher the premium on a call option Both of the above d. Neither a orb 10. Other things being the same, which of the following is (are) correct? The greater the volatility of the underlying financial asset, the higher the premiums on both call and put options The longer the time to maturity, the higher the premiums on both call and put options Both of the above Neither a orb a. b. C. a. b d