Q1: The yield to maturity last Wednesday on a bond that matures in March of 2020 was 2.53%. On the same day, a bond that matures in May of 2039 was 2.82%.

A.This is an example of a yield curve of the typical shape.

B.This is evidence against the liquidity premium hypothesis

C.If the pure expectations hypothesis were true, this is evidence that the market expects short term rates to fall

D.This is an example of the liquidity premium hypothesis

Q2: Agents may reduce their exposure to risk if they ________________________ and this creates a preferred habitat for different types of agents and motivates the market segmentation hypothesis of the term structure of interest rates.

A.maximize their return and minimize their risk

B.hold a portfolio of assets with high liquidity.

C.equalize returns across all their assets

D.hold assets with the same maturities as their liabilities