13. You are a financial consultant. At various times, you hear the following comments on interest rates from clients. How would you respond to each comment?

a. “The yield curve is upward sloping today. This suggests that the market consensus is that interest rates are expected to increase in the future.”

b. “I can’t make any sense out of today’s term structure. For short-term yields (up to three years), the spot rates increase with maturity; for maturities greater than three years but less than eight years, the spot rates decline with maturity; and for maturities greater than eight years, the spot rates are virtually the same for each maturity. There is simply no theory that explains a term structure with this shape.”

c. “When I want to determine the market’s consensus regarding future interest rates, I calculate the implicit forward rates.”