2. The Term Structure of Interest Rates (20 Points).The table below lists the yields on US Treasury

bonds from for select maturities as of May 1st, 2020.

Maturity Yield (in %)

1 Month 0.10

6 Months 0.12

2 Years 0.20

5 Years 0.36

7 Years 0.53

10 Years 0.64

20 Years 1.04

30 Years 1.27

Answer the following questions

(a) 5 points. Plot the yield curve based on the table above. Make sure that you label both axes correctly.

(b) 5 points.Why is the yield curve upward sloping? Explain in detail.

(c) 5 points. Explain what is an inverted yield curve and under what circumstances does the yield curve invert?

(d) 5 points. Explain the shape of the yield curve you drew through the lens of the liquidity preference theory of the term-structure of interest rates?