1. Discuss the expectations theory of the term structure of interest rates.A. Discuss why the interest rate on a long-term bond will equal the average of short-terminterest rates that people expect in the future.B. Discuss some problems with this theory.2. Discuss the liquidity premium theory of the term structure of interest rates.A. Discuss how this theory changes the slope of the yield curve when compared to theone found using the expectations theory.B. Why does this theory appear more consistent with the data when compared to theexpectations theory?3. Discuss how you might interpret an upward sloping yield curve. Flat yield curve. Downwardsloping yield curve.