TRUE/FALSE questions. Justify your answers for each statement.

Assume the one-year forward rate starting in 6 months is 2% and the volatility of future spot rates is 5% per annum. All questions relate to the Black (1976) interest rate model.

(i) The standard deviation of the logarithm of 1-year spot rate starting in 6 months is 5%;

(ii) The 1-year spot rate starting in 6 months is normally distributed;

(iii) The current expected value of the 1-year spot rate starting in 6 months is 2%;

(iv) The current expected value of the logarithm of the 1-year spot rate starting in 6 months is 194bp (rounded);