#4

Given the indicated maturities listed in the following table, assume the following vields for US Treasury securities: 1 5 10 20 30 Maturity (Years) Yield (%) 5.5 5.5 4.2 4.0 On the following graph, plot the vield curve implied by these interest rates, Place a blue point (circle symbol) at each maturity and interest rate in the table, and the vield Curve will draw itself. 10 8 Yield Curve 7 INTEREST RATE (Percent) 5 2 2 1 0 25 30 0 5 10 15 20 MATURITY (Years) yield curve The graph's yield curve represents ch of the following statements is true? The graph's yield curve represents yield curve Based on the vield curve shown, which of the following statements is true? Interest rates on medium-term maturities are higher than rates on long and short-term maturities A market with a yield curve as shown on the graph has higher rates on debt securities that mature within 10 to 30 years than those with maturities of less than 1 to 5 years There are three factors that can affect the shape of the Treasury vield curve (r. IP. and MRP) and five factors that can affect the shape of the corporate Vield curve (1*. IP. MRP, ORP, and LP). The vield curve reflects the aggregation of the impacts from these factors. Suppose the real risk-free rate and inflation rate are expected to remain at their current levels throughout the foreseeable future. Consider all factors that affect the vield curve. Then identify which of the following shapes that the US Treasury vield curve can take. Check all that apply. Inverted vield curve Downward sloping yield curve upward-sloping yield curve Identify whether each of the following statements is true or false. True False Statements If inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury vield Curveis downward slopino (Assume MRP - 0. True False O o of inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury Vield curve is downward sloping (Assume MRP -0.) All else equal, the yield on new bonds issued by a leveraged firm will be less than the yield on the new bonds issued by an unleveraged firm. The yield curve for a 16-rated corporate bond is expected to be above the US Treasury bond yield curve. Yield curves of highly liquid assets will be lower than vield curves of relatively illiquidats, o O o A US Treasury Vield curve is plotted in the following graph INTEREST RATERNI YES TO WATU Based on an upward-sioping normal yield curve as shown, which of the following statements is correct? If the pure expectations theory is correct, future short-term rates are expected to be higher than current short-term rates Pure expectations theory must be correct. Infation must be expected to increase in the future. There is a positive maturity, risk premium