2.14 (Yield curve) If yields on Treasury securities were currently as follows: 1. Plot the yield curve. 2. Explain this yield curve using the unbiased expectations theory and the liquidity preference theory. Chapter Summaries: The Financial Markets and Interest Rates Term 6 months Yield 1.0% 1.7% 1 year 2 years 2.1% 3 years 2.4% 2.7% 4 years 2.9% 5 years 10 years 3.5% 3.9% 15 years 20 years 30 years 4.0% 4.1% 2-15. (Unbiased expectations theory) Currently you have $50,000 that you would like to invest for 2 years and are considering buying a government security maturing in 1 year that pays 3% annually. If you do this, you will also have to purchase another 1-year security at the end of the first year. The alternative is to invest in a government security that matures in 2 years; currently, 2-year government securities are paying 3.5% annually. If you invest your money for 1 year and then after 1 year reinvest it for another year, what rate will you have to earn in order to make the two alternatives equal?