Answer all of these questions with the right question number next to the correct choice. ANSWER ALL OR NONE

1-What does f_1,t+3 = 2.5% mean for a Treasury issued asset?

A)This represents a forward rate that is meaningless today as we cannot calculate it, even using the Expectations Theory

B)Today's 3 year T-Note pays 2.5% for three years, if held to maturity

C)The 3year T-Note will offer 2.5% in 3 years

D)Today's expected 1-year rate three years from now is 2.5%, that is at time "t+3"

2-Given the yield curve below and a forecasted MRPn = 0.25 (n - 1)%, what is the expected 1-year rate forecast by the liquidity theory in the fourth year (3 years from now at time t + 3)? The spot yield curve rates are k(1, t) = 4.75% k(2, t) = 4.95% k(3, t) = 5.25% k(4, t) = 5.35% k(5, t) = 5.45%

A)4.75%

B)4.15%

C)4.95%

D)8.05%

5-What is the meaning of a "forward rate"?

A)It is a rate that arises in the forward market for Treasuries

B)It is an average of the Treasury rates that can be calculated from the yield curve rates

C)It is a rate on a 1-year T-Bill that can be calculated today from the yield curve rates as a forecast of the 1-year T-Bill rate in the future.

D)It is a rate on a 1-year T-Bill that explicity appears today in the market regarding the 1-year T-Bill rate in the future

6-The term structure of interest rates may be defined as the relationship between:

A)Stock returns and maturity

B)Interest rates and chronological time

C)Yields and maturities of bonds of different risk classes

D)Yields and maturities of bonds of the same risk class