1.You have determined the following six month rates for the next two years Period Rate 1^st six months 4.2% 2^nd six months 4.5% 3^rd six months 4.5% 4^th six months 4.7% Based on the expectations theory, what would be the 12 month, 18 month, and 24 month rates.

2.Suppose that the six-month T-bill rate is 5.2 percent. The term premium for a one-year rate is 0.2 percent. The current rate on a one-year T-bill is 5.7 percent. Based on the expectations theory, what is the expected six-month interest rate for the second six-month period?

3.Suppose your tax rate is 28 percent. Would you prefer to earn a 6% taxable yield corporate bond or a 4% tax-free (municipal) yield? They are of equal risk.