Question 1 0/1 point According to the expectations theory, if the current one-year interest rate is 4%, and the one-year interest rate the following year is expected to be 5%, then, the interest rate on a bond with 2 years to maturity should be: Question options: 4% 4.5% 5% Bond investors want a liquidity premium as compensation for holding longer term bonds, because: Question 2 0/1 point Question options: longer-term bonds are so boring, because you can't sell them before maturity. prices of longer-term bonds react more strongly to changes in interest rates. longer-term bonds have a less volatile return. Question 5 0/1 point If the current 1-year interest rate is 3% and the current interest rate on a 2-year bond is 4%, what is the expected 1-year rate starting a year from today? Question options: View Feedback Question 7 0/1 point Assume the current 1-year interest rate is 4%, and you expect the 1-year rate to be 5% next year and 7% in the following year. If the graph below is the yield curve given your expectations (we ignore the liquidity premium in this question), then, in the graph: Question options: a = 4%, b = 9%, c = 16%. a = 4%, b = 4.5%, c = 5.33%. we know that a = 4%, but we don't know what the other numbers will be. Question 9 0/1 point An inverted yield curve is seen as a possibly negative sign for all the following reasons, EXCEPT: Question options: Expected lower interest rates in the future could mean that people expect the Fed to lower rates due to a recession in the future. Interest rates turn negative when the yield curve is inverted. We often get a recession after a period with an inverted yield curve