1) Which of the following statements concerning yield curve shifts is FALSE?

a. A twist results in a flatter or steeper yield curve

b. A parallel shift results in all yields changing by the same amount in the same direction

c. A butterfly shifts result in a change in curvature

2) Of the three factors that have been observed to affect Treasury returns, which is the most important? Changes in the:

a. Slope of the yield curve

b. Curvature of the yield curve

c. Level of interest rates

d. Duration of on-the-run Treasury securities

3Former Treasury Secretary Robert Rubin decided to stop issuing 300-year Treasury bonds in 2001 and to replace them by borrowing more with shorter-maturity Treasury bills and notes. Which of the following statements concerning this decision is TRUE?

a. If the pure expectations hypothesis of the term structure is correct, this decision will reduce the governments borrowing cost

b. If the pure expectations hypothesis of the term structure is correct, this decision will increase the governments borrowing cost

c. If the liquidity theory if the term structure is correct, this decision will reduce the governments borrowing cost.

d. If the liquidity theory if the term structure is correct, the decision will not change the governments borrowing cost.

d. A positive butterfly shift results in more curvature