1) According to Bloomberg, the following maturities and YTMs (yield-to-maturities) were observed for U.S. Treasury bills and notes:

What is the shape of this yield curve?

Inverted.

Normal.

Flattening.

Steepening.

None of the above.

2) If the expected path of one-year interest rates over the next five years is 1.5%, 2%, 2.5%, 3%, and 3.5%, then the pure expectations theory predicts that today's interest rate on the five-year bond is (approximately):

2.35%

2.94%

2.50%

3.25%

None of the above.

3) Suppose the interest rate on a 1-year U.S. T-bond is 5.0% and the interest rate on a 2-year U.S. T-bond is 7.0%. Assuming the pure expectations theory is correct, what is the market's forecast for 1-year rates 1 year from now (approximately)?

9%

6.5%

7%

8.5%

None of the above.

Maturity 3 Month 6 Month 2 Year 5 Year 10 Year YTM 4.00% 3.85% 350% 2 25% 1.75%