a) Does the yield curve have its usual shape?

b) Calculate the term or liquidity premium for each of these interest rates and interpret your results.

c) What three facts must a good theory of the yield curve explain?

Consider the following information about the yield curve for US treasuries on 10/12/2018: 1 Mo 2.32 2 Mo 3 Mo 2.39 2.41 7 Yr 2.77 10 Yr 2.85 20 Yr 30 Yr 3.00 3.13 Observed Interest Rates 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 2.54 2.692.72 2.73 2.71 Expected Interest Rates 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 2.67 3.14 3.17 3.02 2.72 1 Mo 2.55 2 Mo 2.57 3 Mo 2.60 7 Yr 2.55 10 Yr 2.46 20 Yr 2.5 30 Yr 2.5 Consider the following information about the yield curve for US treasuries on 10/12/2018: 1 Mo 2.32 2 Mo 3 Mo 2.39 2.41 7 Yr 2.77 10 Yr 2.85 20 Yr 30 Yr 3.00 3.13 Observed Interest Rates 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 2.54 2.692.72 2.73 2.71 Expected Interest Rates 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 2.67 3.14 3.17 3.02 2.72 1 Mo 2.55 2 Mo 2.57 3 Mo 2.60 7 Yr 2.55 10 Yr 2.46 20 Yr 2.5 30 Yr 2.5