1. (a) There are 3 'facts' (or empirical observations) concerning yield curves. Identify and briefly describe these 3 'facts'. (6 marks) (b) The yields on 2-year and 10-year Canadian bonds from August and October of this year were as shown in the table below: 2 yr yield (%) 1.35 10-yr yield (%) 1.40 Date August 2019 October 2019 1.75 1.60 What is the numerical value for the slope of the yield curve in Canada in August? October? Briefly explain (2 marks) (c) Using the Liquidity Premium model of the term structure of interest rates and assume that the liquidity premium has not changed between August and October, then what does the change in the slope of the yield curve between August and October suggest about: i) future short term interest rates in Canada? Explain. (3 marks) ii) future inflation rate? Explain fully. (4 marks) and 1. (a) There are 3 'facts' (or empirical observations) concerning yield curves. Identify and briefly describe these 3 'facts'. (6 marks) (b) The yields on 2-year and 10-year Canadian bonds from August and October of this year were as shown in the table below: 2 yr yield (%) 1.35 10-yr yield (%) 1.40 Date August 2019 October 2019 1.75 1.60 What is the numerical value for the slope of the yield curve in Canada in August? October? Briefly explain (2 marks) (c) Using the Liquidity Premium model of the term structure of interest rates and assume that the liquidity premium has not changed between August and October, then what does the change in the slope of the yield curve between August and October suggest about: i) future short term interest rates in Canada? Explain. (3 marks) ii) future inflation rate? Explain fully. (4 marks) and