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3. Pure expectations theory: Two-year bonds Which of the following is consistent with the pure expectations theory of the yield curve? Check all that apply.

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3. Pure expectations theory: Two-year bonds Which of the following is consistent with the pure expectations theory of the yield curve? Check all that apply. A flat yield curve suggests that the market thinks interest rates in the future will be higher than they are today. A downward-sloping yield curve suggests that the market thinks interest rates in the future will be lower than they are today. An upward-sloping yield curve suggests that the market thinks interest rates are going to be higher in the future than they are today. O A downward-sloping yield curve suggests that the market thinks interest rates in the future will be higher than they are today. Lucia would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 4 percent and a two-year bond that pays 8 percent. Lucia is considering the following investment strategies: Strategy A: In the first year, buy a one-year bond that pays 4 percent. Once that bond matures, buy another one-year bond that pays the forward rate. Strategy B: In the first year, buy a two-year bond that pays 8 percent annually. If the one-year bond purchased in year two pays 9 percent, Lucia will choose Which of the following describes conditions under which Lucia would be indifferent between Strategy A and Strategy B? O The rate on the one-year bond purchased in year two pays 10.331 percent. O The rate on the one-year bond purchased in year two pays 12.154 percent. The rate on the one-year bond purchased in year two pays 12.640 percent. The rate on the one-year bond purchased in year two pays 13.126 percent

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