A. Yield to Call Find the yield to call for a 7% coupon, $1,000 par 15 year bond selling at $1020.55 if the bond is callable in 10 years at a call price of $1,070. The bond makes semiannual coupon payments.

B. Exotic Contracts A contract where the seller of the contract collects an annual premium (and sometimes an upfront fee) from the buyer and in exchange the seller of the contract pays the drop in value from par to the buyer if a security defaults is called a

C. The Term Structure Which of the following result from the expectations theory of the yield curve? I. The observed long-term rate includes a risk premium II. Long term rates are a function of expected future short term rates III. An upward slope means that the market is expecting higher future short term rates IV. The observed yield curve is above the pure expectations yield curve.

I only

I and II only

II and III only

II, III and IV only