1. Interpret the following comment made by Wall Street analysts and portfolio managers: The shift from an upward-sloping yield curve to a downward-sloping yield curve is sending a warning about possible recession.

Please answer the following questions:

(1) What is a yield curve? What information would you need to draw this curve?

(2) Distinguish among the shapes of a "normal" yield curve, an "inverted" curve, and a "humped" curve.

(3) Why could an anticipated recession force the yield curve to shift downward-sloping?

2. Does the interest rate on a government treasury bond include a default risk premium? Explain.