Question 4 (25 points) - start your answer on a new separate sheet! Note: answers without explanation receive zero points a) Name three important differences between hedge funds and mutual funds Consider the two statements (I and II) below A downward sloping term structure often predicts a recession II Under the liquidity preference theory, the expected short rate for year n equals the forward rate for year n Next, consider the 4 following answers (A, B, C and D) A. Both recommendations are true B. Both recommendations are not true C. I. is true and II. is not true D. II. Is true and I. is not true b) Select one of the answers (A, B, C or D) above. Motivate why. Consider the term structure below for zero coupon bonds Term 1 2 3 5 6 7 8 9 10 Yield 0.02 0.04 0.05 0.055 0.06 0.062 0.066 0.07 0.073 0.075 C) Under the expectations hypothesis, what information does the shape of the above term structure contain about the future economy? Rene buys one five year zero-coupon bond and sells six year bonds short for exactly the same amount. Define Rene's cash flows for every year until year 7. e) Define the forward rate for year 6, the expected short rate for year 6 under the expectations hypothesis and the spot rate for year 6