a) Imagine that the yield curve is currently flat. The Treasury announces that they will no longer issue securities with maturities longer than two years. As a result, long-term government bonds will be refinanced using only relatively short-term debt. If the "market segmentation theory" of the yield curve is correct, what will happen to the slope of the yield curve as a result of this policy change? If the "preferred habitat" theory holds, what will happen? Explain briefly.

b) True, False, or Uncertain and Explain. According to the "liquidity preference theory" of the yield curve, if the yield curve is flat, rates investors expect to be available in the future are the same as current rates

c) True, False, or Uncertain and Explain. Suppose that you want to invest $1,000 in a Treasury bond with 10 years to maturity. Two are available, one with a coupon rate of 6%, and the other with a coupon rate of 11%. If you expect to hold the bond until maturity, buying the 6% bond reduces the riskiness of your total return (relative to buying the 11% bond).