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8) 5 points When interest rates on a 1 year bonds is 2.0 percent and is expected to have a path of 2.5, 3, 3.5,
8) 5 points When interest rates on a 1 year bonds is 2.0 percent and is expected to have a path of 2.5, 3, 3.5, and 4 percent over the next four years and the liquidity premium, is Ime = (n-1)(0.05)% a. Calculate the yield today on 2 year, 3 year, 4 year and 5 year bonds respectively. Draw the yield curve. b. What information do we derive on future economic growth and inflation from this yield curve? c. If Bank of Canada increases the short term yield to 2.5%, and people expect it to be a temporary change, what will be the effect on the yield curve
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