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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. 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 yleld curve suggests that the market thinks short-term interest rates in the future will be lower than they are today. A flat yieid curve suggests that the market thinks interest rates in the future will be the same as they are today. Megan would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 4% and a two-year bond that pays 7%. Megan is considering the following investment strategies: Strategy A: Buy a one-year bond that pays 4% 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 Megan can purchase in one year pays 9\%, Megan will choose - (Note: Assume there is no compounding.) On the following graph, use blue points (cirde symbol) to draw the yield curve for the t Megan can purchase today. On the following graph, use blue points (circle symbol) to draw the yield curve for the two bonds that Megan can purchase today. 10 T 9 - B. Yeid curve (?) Which of the following describes conditions under which Megan would be indifferent between Strategy A and Strategy B? The rate on the one-year bond purchased in one year is 10%. The rate on the two-year bond is 1%. The rate on the one-year bond purchased in one year is 1%. The rate on the two-year bond is 10%

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