43. Under pure expectation theory, if the current 1 year Treasury rate is 5% and the current 2 year rate is 4%, what rate is the market predicting for the 1 year Treasury one year from now? A. 3%

B. 4% C. 5% D. 6%

44. Of the four theories that explain how interest rates on bonds with different terms to maturity are related, the one that views long-term interest rates as equaling the average of future short-term rates expected to occur over the life of the bond is the A. pure expectations theory.

B. preferred habitat theory. C. liquidity premium theory. D. segmented markets theory.

45. Under the liquidity premium theory, a moderately upward-sloping yield curve indicates that short-term interest rates are expected to A. neither rise nor fall in the near future. B. remain relatively unchanged, but that long-term rates are expected to fall.

C. neither rise nor fall, but that long-term rates are expected to rise moderately. D. rise moderately in the near future.

46. One would expect an exempt municipal bond to have a _______ a corporate bond with a similar structure and equal credit rating. A. higher nominal yield than B. lower nominal yield than

C. similar nominal yield as D. lower tax equivalent yield than