5) Use the following information to answer the next two questions:

Answer True if you understand?

Year	One-Year Rate	Liquidity Premium
1	2.10%	0%
2	3.20%	0.20%
3	4.40%	0.40%
4	5.00%	0.60%
5	6.10%	0.80%

6) According to Expectations theory what is the expected interest rate for a bond with a maturity of three years?

A)	3.03%
B)	3.23%
C)	3.43%
D)	3.63%

7) According to the Liquidity Premium theory what is the expected interest rate for a bond with a maturity of five years?

A)	4.16%
B)	4.28%
C)	4.56%
D)	4.96%

8) Segmented markets theory explains why ____________________. (Select all that apply)

A)	The interest rates on bonds of different maturities tend to move together over time
B)	When short-term rates are low yield curves tend to slope upward
C)	When short-term rates are high yield curves tend to slope downward
D)	Short-term rates are more volatile than long-term rates
E)	Yield curves tend to slope upward

9) Which of these theories assumes that investors have no maturity preference?

A)	Expectations theory
B)	Segmented markets theory
C)	Liquidity premium theory
D)	Preferred habitat theory

10) According Preferred Habitat theory risk-averse investors _______________.

A)	Prefer short-term bonds due to the high liquidity
B)	Prefer long-term bonds due to the high liquidity
C)	Prefer short-term bonds due to the lower interest rate risk
D)	Prefer long-term bonds due to the lower interest rate risk