Final_Answers - Answer Key Testname FINAL.TST 1 2 3 4 5 6 7...

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Answer KeyTestname: FINAL.TST
1
Short Answer Questions1. Briefly explain why the interest rate on municipal bonds was sometimes higher than theinterest rate on Treasury bonds, even though the interest income from munis is exempt fromtax.
2. Graph the yield curve implied by the liquidity preference hypothesis when short-terminterest rates are expected to stay constant in the future (important:do not forget to labelthe axes).

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