Bob gets offered to choose between receiving 100 USD today and receiving 102 USD in one year from now. The risk-free interest rate is 3%. The expected return on the stock market over the next year is 7%. Which of the following statements is true?

A.

Which option Bob should choose depends on his preferences.

B.

The net present value of receiving 102 USD in one year is roughly 99 USD.

C.

Bob can expect to own 107 USD in one year if he chooses the first option and then invests the money in the stock market.

D.

All statements are true.

Suppose that the government runs a strong budget surplus. At the same time, investors' wealth has increased significantly. According to our supply and demand model of the bond market, which of the following statements should be true:

A.

Bond prices increase and therefore yields increase

B.

Bond prices increase and therefore yields decline

C.

The change in yields is ambiguous

D.

Bond prices decrease and therefore yields increase

Corporate bonds typically have a higher yield than government bonds because:

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Part 1

A.

All of these reasons

B.

They have a shorter maturity

C.

They have a higher price

D.

They are perceived as more risky

E.

None of these reasons, the statement is false

F.

There is a larger supply of them