The principle of risk aversion means that

A. Investors will pay to avoid certain risks.

B. Risk premiums are always negative.

C. Investors never take on risk.

D. Investors require larger compensation when the risk of a security decreases.

A pension fund manager who buys a futures contract for US Tbills is:

A. Taking on additional risk in hopes of getting a larger return when Tbill prices fall.

B. Ensuring the sale price of the Tbill through hedging.

C. Ensuring the purchase price of the Tbill through hedging.

D. Should see the value of the futures contract increase as bond prices fall.

An investor that sells a futures contract for an asset for leverage rather than risk management is:

A. Speculating that the price of the commodity is going to fall.

B. Speculating that the price of the commodity is going to increase.

C. Is using arbitrage to earn profits without taking a risk.

D. Is hedging and transferring risk.

With the financial crisis, many bonds received ratings downgrades. As a result we would expect

A. Yields on these bonds will increase and their prices will fall.

B. The yield on these bonds will not change.

C. The yield on these bonds will decrease and their prices will rise

D. Yields and prices on these bonds will increase.