1. Total asset turnover indicates the firm's

a)liquidity.
b)debt position.
c)ability to use its assets to generate sales.
d)profitability.

2. Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial institutions. This theory is called the
a)expectations hypothesis.
b)segmentation theory.
c)liquidity premium theory.
d)theory of industry supply and demand for bonds.

1. To answer this question, we need to understand what total asset turnover means. Total asset turnover is a financial ratio that measures a company's ability to generate sales using its assets. It indicates how efficiently a company uses its assets to generate revenue.

To determine the firm's ability to use its assets to generate sales, we can calculate the total asset turnover ratio by dividing the company's net sales by its average total assets. The higher the ratio, the more efficiently the company is using its assets to generate sales.

Now, let's look at the options:

a) Liquidity: Total asset turnover does not directly indicate the firm's liquidity. Liquidity refers to the company's ability to meet short-term obligations with its current assets.

b) Debt position: Total asset turnover is not directly related to a firm's debt position. Debt position refers to how much debt a company has and its ability to meet its debt obligations.

c) Ability to use its assets to generate sales: This is the correct answer. Total asset turnover specifically measures a company's ability to use its assets to generate sales.

d) Profitability: Total asset turnover is not a direct indicator of profitability. Profitability refers to the company's ability to generate profits and is measured using ratios such as net profit margin.

Therefore, the correct answer is c) ability to use its assets to generate sales.

2. To determine the theory that explains the term structure of interest rates based on the behavior of various types of financial institutions, let's look at the options:

a) Expectations hypothesis: The expectations hypothesis states that the interest rate for a specific maturity of a bond should be equal to the market's expectation of the average interest rate for that maturity over the bond's lifetime.

b) Segmentation theory: The segmentation theory suggests that the term structure of interest rates is determined by the supply and demand for bonds in specific maturity ranges.

c) Liquidity premium theory: The liquidity premium theory argues that investors require a higher return (or premium) for taking on the risk associated with longer-term bonds, as these bonds are less liquid.

d) Theory of industry supply and demand for bonds: This theory is not directly related to the behavior of financial institutions and is less commonly referenced in relation to the term structure of interest rates.

Based on the question, the theory that aligns with the behavior of various types of financial institutions is b) segmentation theory.

Therefore, the correct answers are c) ability to use its assets to generate sales and b) segmentation theory.