Which of the following statements are correct concerning the term structure of interest rates? I. The outlook for future inflation influences the shape of the term structure of interest rates. II. The term structure of interest rates includes only the real rate of return and the inflation premium. III. The interest rate risk premium is included in the term structure of interest rates. IV. The term structure of interest rates can be downward sloping.

The volatility of a stock index is expected to be _________ compared to the volatility of a typical stock.

1. the same when
2. lower
3. higher
4. an order of magnitude lower

Option traders like to trade ATM options because

1. the Gamma is near-maximum and hence prices are the most sensitive ATM.
2. the Gamma is near-maximum and hence prices are the least sensitive ATM.
3. it is the safest to trade ATM as almost everyone does so.
4. the Gamma is near 0 ATM and hence the risk is lowest.

If the current stock price of a company that does not pay dividend is $1, the volatility is 1%, the risk-free rate is 1%, then the amount of shares to hold in order to hedge an ATM European call option that matures in 1 year and has multiplicity of 1 is closest to

1. 0.75
2. 0.85
3. 0.65
4. 0.55

Investors usually invest in which bonds:

1. Treasury Bonds because of its high yield
2. Corporate Bonds because of its liquidity
3. Municipal bonds for their high yield
4. Convertible bonds for their potential price appreciation

The market price of a bond is equal to::

1. the present value of the face value minus the present value of the annuity payments.
2. the present value of the face value plus the future value of the annuity payments.
3. the present value of the face value plus the present value of the annuity payments.
4. the present value of the annuity payments plus the future value of the face amount.

CampusGurus is preparing a bond offering with an 8 percent coupon rate and face value of $1,000. The bonds will be repaid in 10 years. The company plans to issue the bonds at par value and pay interest semiannually. Given this, which of the following statements are correct?

1. The initial selling price of each bond will be $1,000.
2. After the bonds have been outstanding for 1 year, you should use 9 as the number of compounding periods when calculating the market value of the bond.
3. Each interest payment per bond will be $40.
4. The yield to maturity when the bonds are first issued is 8 percent

1. II, III, and IV only
2. I, II, and III only
3. II and III only
4. I, III, and IV only

When the Black-Scholes Model is applied to the pricing of options on exchange rates, the foreign currency may be regarded as

1. an asset that is priced in the base currency and gives dividends in the form of bank deposit interest.
2. an asset that is priced in the base currency and gives dividends just as some stocks do.
3. an asset that is priced in the foreign currency and gives dividends in the form of bank deposit interest.
4. an asset that is priced in the foreign currency and gives dividends just as some stocks do.