1. If the expectations theory of the term structure of interest rates is correct, and if the other term structure theories are invalid, and we observe a upward sloping yield curve, which of the following is a true statement? (2 points) a. Investors expect short-term rates to be constant over time. b. Investors expect short-term rates to increase in the future. c. Investors expect short-term rates to decrease in the future. d. Investors expect future inflation rate will be the same as the current inflation rate. 2. If the yield curve is downward sloping, what is the yield to maturity on a 10-year Treasury bond, relative to that on a 1-year T-bond? (2 points) a. The yield on the 10-year bond is less than the yield on a 1-year bond b. The yield on a 10-year bond will be higher than the yield on a 1-year bond e. The yields on the two bonds are equal d. It is impossible to tell without knowing the relative risks of the two bonds. 3. Which of the following is one of the fundamental factors that affect the cost of money? (2 points) a production opportunities b. time preferences for consumption c. Risk d. Inflation e all of the above 4. Which of the following ratings by Standard & Poor's represent "investment grade"? (2 points) a. b. C. d. e. AA BB B CCC Both a and b Which of the followings are short-term debt (2 points) 5. instruments a. Treasury bond b. Commercial paper c. Repurchase Agreement (Repo) d. Stock e. Both b and c