39. Two interest risk measures of fixed income securities are:

A. Skewness and Kurtosis,

B. Duration and Beta,

C. Convexity and Duration,

D. VaR.

40. Prospect theory:

A. Is a behavioral economic theory,

B. Explains the return to risk tradeoff in terms of cognitive biases,

C. Its mainly normative,

D. All of the above.

41. According to the Grossman-Stiglitz paradox if the EkIH holds, informed traders should not bother to trade on information as prices already reflect all available information. But then, how market prices reflect investors information?

A. True

B. False.

42. The forward gross rate of return of a forward rate agreement (FRA) from /-7 to I should be equal to the ratio between the value of one dollar at I-7 and t.

A. True,

B. False.

43. List two old theories of the term structure of interest rates and explain them in two lines.