QUESTION 3 Can the term premium be positive if the yield curve is downward sloping? Yes O No QUESTION 4 Suppose that the spot interest rate on a one-year zero-coupon bond is 2% and the spot interest rate on a two-year zero-coupon bond is 3.5%. Based on the pure expectations theory of the term structure of interest rates, what is the expected one-year interest rate starting in one year? (Hint: You should use the approximation from class.) QUESTION 5 Suppose that the spot interest rate on a one-year zero-coupon bond is 3% and that the spot rate on a two-year zero-coupon bond is 3.5%. If you expect the one-year interest rate starting in one year to be 5%, what is your optimal investment strategy for a two-year investment? Buy a two-year bond Buy a one-year bond and plan to buy a second one-year bond next year