Explanation
A money market security is one that is initially issued with a maturity of less than one year. Treasury bills are short-term government securities with maturities ranging from a few days to 52 weeks. Bills are sold at a discount from their face value, and do not carry a coupon. Treasury notes and treasury bonds are not money market instruments as they are issued for a maturity greater than a year. Treasury notes are issued with maturities of 2, 3, 5, 7, and 10 years and pay interest every six months. Treasury bonds pay interest every six months and mature in 30 years.
Commercial paper is issued by corporations to meet their short term funding needs and is a money market instrument. Bankers' acceptances are short term loans to corporations that are guaranteed by a bank.
Of the given list, since treasury notes are the only instrument that are not money market securities, Choice 'a' is the correct answer.

Explanation
All the statements given are true, except that standard deviations cannot be averaged to get the portfolio standard deviation unless the assets are perfectly positively correlated. Therefore Choice 'd' is the false statement, and the correct answer.
For a portfolio of uncorrelated assets, ie correlations being equal to zero, variances can be added together to get portfolio variance. Also, regardless of correlations, portfolio returns are always the weighted average of asset returns, and just averages will do in this case as the portfolio is said to be equally weighted across the assets. A correlation of zero produces a risk level less than that possible with positive correlations.

Explanation
There are two main theories that explain an upward sloping yield curve. The first is the market expectations hypothesis (called 'pure expectations'). According to this explanation, the yield curve represents investor expectations of future yields, and forward rates are predictors of future interest rates. The yield curve slopes upwards when investors expect interest rates to go up in the future. Thus, statement I is correct. By the same logic, statement II is incorrect.
The second explanation for an upward sloping yield curve is the liquidity preference theory - according to which investors value liquidity and are prepared to pay more for instruments that mature earlier. Having their money tied up in longer maturity instruments increases all kinds of risks, and therefore longer term instruments are priced lower than instruments maturing earlier. Since the price of instruments that mature earlier is higher, their yield is lower than that of longer dated securities, thereby leading to an upward sloping yield curve. Therefore statement III is correct.
Statement IV actually explains why an yield curve may be downward sloping - in fact an inverted yield curve is considered an indicator of an upcoming recession. Therefore statement IV does not explain an upward sloping yield curve, and is therefore not a correct choice for the answer.
Thus statements I and III correctly explain an upward sloping yield curve. Other choices are incorrect.

Explanation
The zero coupon spot rate for 4 years can be calculated as = (1.02*1.03*1.04*1.05)^(1/4) - 1 = 3.49%, which is the correct answer. (3.50% is just the mathematical average of the rates for the four years and is not correct, even though close.)

Explanation
A higher coupon brings forward the cash flows of a bond, thereby lowering duration. Therefore statement I is true. The lower the duration the lower the convexity. Therefore a higher coupon leads to lower duration and therefore lower convexity. Thus statement II is true.
Bonds do not have negative modified duration, therefore statement III is false.
If the bond is callable, it leads to negative convexity as a fall in interest rates is likely to induce the issuer to call the bond and re-issue at the new lower interest rates (much like refinancing mortgages when interest rates fall), therefore the upside from a fall in rates is limited. This creates 'negative convexity'. Thus statement IV is correct.