Write down whether each of the following statements is True or False: (i) The changes in the short rate in the Ho-Lee short rate model are independent of the level of the rate. (ii) The Vasicek model is an arbitrage-free model. (iii) The Cox, Ingersoll and Ross (CIR) model does not admit closed-form solutions for European options on zero-coupon bonds. (iv) Macaulay Duration is a first order measure of a bonds' riskiness. (v) The Heath, Jarrow and Morton (HJM) model is an approach that directly models zero-coupon bond prices. (vi) The Black, Derman and Toy (BDT) model is not an affine model. (vii) Zero-coupon bond prices increase with increasing maturity. (viii) Lognormally distributed short rate models are mean-reverting. (ix) Black's model does not assume that the underlying interest rate is subject to geometric Brownian motion. (x) The forward rate implied by the yield curve is not the same as the risk neutral expected forward rate. [10 marks] Question 2 You are given the following information about the term structure of interest rates: (i) Determine the discount rates (quoted per annum) for each of the discount factors. (ii) Determine 6-month forward discount rates (also quoted per annum). Write down whether each of the following statements is True or False: (i) The changes in the short rate in the Ho-Lee short rate model are independent of the level of the rate. (ii) The Vasicek model is an arbitrage-free model. (iii) The Cox, Ingersoll and Ross (CIR) model does not admit closed-form solutions for European options on zero-coupon bonds. (iv) Macaulay Duration is a first order measure of a bonds' riskiness. (v) The Heath, Jarrow and Morton (HJM) model is an approach that directly models zero-coupon bond prices. (vi) The Black, Derman and Toy (BDT) model is not an affine model. (vii) Zero-coupon bond prices increase with increasing maturity. (viii) Lognormally distributed short rate models are mean-reverting. (ix) Black's model does not assume that the underlying interest rate is subject to geometric Brownian motion. (x) The forward rate implied by the yield curve is not the same as the risk neutral expected forward rate. [10 marks] Question 2 You are given the following information about the term structure of interest rates: (i) Determine the discount rates (quoted per annum) for each of the discount factors. (ii) Determine 6-month forward discount rates (also quoted per annum)