1. The following table states the yields to maturity of one-year, two-year and three-year Treasury notes. (Hints: Treasury note is discount bond with face value of $1,000.)

Term

1-year

2-year

3-year

YTM

2.81

2.92

2.98

(a) Is the yield curve sloping upwards or downwards? (1 marks) 1(b) Compute the price of the three-year Treasury note. (4 marks) 1(c) What is the duration of the three-year Treasury note? (2 marks) 1(d) Assuming the expectation theory is the correct theory of the term structure, calculate the expected one-year yield rate of next year. (4 marks) 1(e) Assuming the expectation theory is the correct theory of the term structure, calculate the expected one-year yield rate of 2 years later. (4 marks)