44. Why would anyone sell out-of-the-money puts on a 2-year swap and buy out-of-the-money puts on the 10-year swaps? *** INU I rely on financial models or economice A . D To bet on the yield curve steepening since normally a 10-Year interest rate is lower than a 2-Year rate To bet on the yield curve steepening since normally a 10-Year interest rate is higher than a 2-Year rate To bet on the yield curve inverting since normally a 10-Year interest rate is lower than a 2-Year rate 45. In an interest rate swap, a fixed interest rate is exchanged for a variable benchmark rate such as LIBOR plus or minus a spread A Buying a put on a swap means you buy the right but not the obligation to receive a fixed rate and pay the variable rate B. Buying a put on a swap means you buy the right but not the obligation to receive a variable rate and pay the fixed rate D. Sell a put on a swap: sell the right but not the obligation to receive a variable rate and pay the fixed rate. 46. Suppose that the gap between two stocks has historically had a mean of 3 with a standard deviation of 1.5. In the following graph: 75 70 65 if one were to implement a pairs trading strategy, then one would: A. short Upper stock 100x at C, long Bottom stock 100x at C'. Then at D, liquidate positions: long Upper stock, short Bottom stock. The profit going short at C is going to be +800, while the profit going long at C is going to be -400 for a net profit of +400. B. short Upper stock 100x at A, long Bottom stock 100x at A'. Then at B, liquidate positions: sell Upper stock, buy Bottom stock. The profit going short at A is going to be -200, while the profit going long at A' is going to be +700 for a net profit of +500 C. long Upper stock 100x at A. short Bottom stock 100x at A'. Then at B, liquidate positions: sell Upper stock, buy Bottom stock. The profit going long at A is going to be -200, while the profit going short at A' is going to be +700 for a net profit of +500 D. short Upper stock 100x at C, long Bottom stock 100x at C'. Then at D/D', liquidate positions: buy Upper stock, sell Bottom stock. The profit going short at C is going to be +800, while the profit going long at C is going to be -300 for a net profit of +500 6