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Which of the following is consistent with the pure expectations theory of the yield curve? Check all that apply. _ Long-term interest rates are based on expectations of what short-term interest rates will be in the future. A flat yield curve suggests that the market thinks interest rates in the future will be the same as they are today. An upward-sloping yield curve implies that the market thinks short-term interest rates are going to be higher in the future than they currently are. An inverted yield curve suggests that the market thinks short-term interest rates in the future will be lower than they are today. Kate would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 7% and a two-year bond that pays 7%. Kate is considering the following investment strategies: Strategy A: Buy a one-year bond that pays 7% and in one year buy another one-year bond. Strategy B: Buy a two-year bond that pays 7% this year and 7% next year. If the one-year bond that Kate can purchase in one year pays 9%, Kate will choose V . (Note: Assume there is no compounding.) 0n the following graph, use blue points (circle symbol) to draw the yield curve for the two bonds that Kate can purchase today. 10 9 8 __ Weld curve 7 __ 6 __ a s -- 5. 4 __ 3 __ 2 __ 1 __ 0 l l l Term Which of the following describes conditions under which Kate would be indifferent between Strategy A and Strategy B? O The rate on the one-year bond purchased in one year is 7%. O The rate on the two-year bond is 7%