Reference no: EM131179945
True or False: (please justify your answer)
1. There does not exist a financial instrument to insure against the default of bonds or asset-backed debt securities.
2. In the case of two random variables, X and Y , that are independent, the variance of X + Y is simply the sum of the variances of both X and Y .
3. The forward rate is the future spot rate
4. At high levels of interest rates, the price of a callable bond and a regular bond is roughly the same.
5. Unlike for a call option, the premium paid to purchase a put option increases in value as the volatility of the underlying asset decreases because it becomes more likely the put option will end in the money
6. The Black-Scholes formula assumes the stock price is constant over the life of the option.
7. A long-term investor will not invest in a short-term bond unless there is a positive liquidity premium.
8. Portfolio variance can be reduced to zero with diversification in an Index Model.
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The forward rate is the future spot rate
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