4. Draw this yield curve and answer the questions below: (10 points)

• 3 months 2.25
• 6 months 2.20
• 1 year 2.05%
• 2 years 2.10%
• 7 years 2.15%
• 10 years 2.20%
• 20 years 2.70
• 30 years 3.0%

1. If a bank has offered to give you a 30-year mortgage that is priced at 1.25% above 30-year T-Bond rate, what is the interest rate on your loan?
2. If you buy a 7-year US T-Note today, what will be your return?
3. Assume that the Federal Reserve increased interest rates by 0.50% and the entire yield curve shifted up by 50 basis points across all tenors. Draw the new yield curve and What is the new yield for 10-year Treasury Note?
4. Assume that the federal Reserve decreased interest rates by 0.75% and the entire yield curve shifted down by 75 basis points across all tenor. Draw the new yield cure and What is the new yield for a 30-year Treasury Bond?
5. Based on the original yield curve above, what is the difference between the return on a 2-year note and the return on a 10-year note (In the past a negative 10 - 2 has provided a good indication of a recession).