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Version B - KEY

Version B - KEY - Midterm 2 Version B(GREEN EC370 Fall 2008...

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Midterm 2 – Version B (GREEN) EC370 - Fall 2008 1) B 2) B 3) C 4) B 5) B 6) D 7) A 8) D 9) D 10) A 11) C 12) C 13) C 14) C 15) D (A) 16) B 17) A 18) D 19) A 20) D 21) C 22) B 23) A 24) C 25) A 26) <Discussed in class> 27) a) It steepened. b) Interest rates tend to move together; When ST rates are low, the YC tends to slope up (and vice versa); The YC usually has a positive slope. The YC should look like an upward sloping line, with a downward sloping tail corresponding to the long bond. It roughly fits the facts (i.e. it slopes upward) but if you quibble about the small inversion at the back end of the curve it is fine. c) 1 2 3 4 1 2 5 3 3 3 4 3 4 3 2 3 5 2 3 5 2 3 ; 5 3 3 3 2 ; 5 2 5 4.3% e e e e e e t t t t t t t t t t e e e e e e t t t t t t t t t t e t i i i i i i i i i i i i i i i i i i i i i + + + + + + + + + + + + + + + + + + + = = + + + + = = = =
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28) This is question #14 at the end of Chapter 7 with a slight adjustment to avoid a VERY small ambiguity: No, if a person has no better information than the rest of the market. An expected price
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Version B - KEY - Midterm 2 Version B(GREEN EC370 Fall 2008...

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