1. Using the Market Segmentation Theory, outline the impacts on the term structure of interest rates of the following cases

a. Economic Recession

b. Fed purchase of long-term Treasury bonds.

2. Explain Expectations Theory intuitively and with an example. In your example assume a flat yield curve with one- and two-year bonds at 6% and an expectation of next year's yield curve being flat with one- and two-year bonds at 4%. Explain the theory only in terms of the response to the expectation by investors. Please use calculations and graphs to show the changes in the yield curve