B1: True or False and Explain

a. If we observe that yields on short-term government debt are higher than yields on longterm government debt then we should expect a recession in Australia.

b. If the liquidity premium hypothesis is true, then forward rates are an unbiased measure of investors expectations about future interest rates.

c. The risk-free rate is 5% and the beta of a risky stock is zero. It would be consistent (and possible) in a market where the CAPM holds for the market to experience a realised return of 10% over the next year, while the risky stock has a realised return of 33% over the next year.