Which of the following is consistent with the pure expectations theory of the yield curve? Check all that apply.

A flat yield curve suggests that the market thinks interest rates in the future will be the same as they are today.

A flat yield curve suggests that the market thinks interest rates in the future will be lower than they are today.

An upward-sloping yield curve suggests that the market thinks interest rates are going to be lower in the future than they are today.

A downward-sloping yield curve suggests that the market thinks interest rates in the future will be lower than they are today.

Kyoko would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 4 percent and a two-year bond that pays 9 percent. Kyoko is considering the following investment strategies:

Strategy A: In the first year, buy a one-year bond that pays 4 percent. Once that bond matures, buy another one-year bond that pays the forward rate.

Strategy B: In the first year, buy a two-year bond that pays 9 percent annually.

If the one-year bond purchased in year two pays 6 percent, Kyoko will choose Strategy A or Strategy B?

Which of the following describes conditions under which Kyoko would be indifferent between Strategy A and Strategy B?

The rate on the one-year bond purchased in year two pays 13.386 percent.

The rate on the one-year bond purchased in year two pays 14.240 percent.

The rate on the one-year bond purchased in year two pays 14.810 percent.

The rate on the one-year bond purchased in year two pays 15.379 percent.