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A firm wishing to evaluate interest rate behavior has gathered yield data on five U.S. Treasury securities, each having a different maturity and all measured
A firm wishing to evaluate interest rate behavior has gathered yield data on five U.S. Treasury securities, each having a different maturity and all measured at the same point in time. The summarized data follows: U.S. Treasury Security Time to Maturity Yield A 1 year 12.6% B 10 years 11.1% 6 months 13.1% D 20 years 10.9% E 5 years 11.4% a. Draw the yield curve associated with these data. b. Describe the resulting yield curve in part a, and explain what it says about the expectations theory rection of future interest rates under the a B. 13.57 13- . 12.5 12- Yield 11.5- . 11- 10.5 10+ 0 50 100 200 250 300 150 Months b. Describe the resulting yield curve in part a, and explain what it says about the direction of future interest rates under the expectations theory. (Select the best answer below.) O A. The yield curve is clearly downward sloping, as was seen in the 1970s. Expectations theory would interpret such a curve as forecasting higher rates, perhaps because of higher inflation, in the future. O B. The yield curve is clearly upward sloping, as was seen in the 1970s. Expectations theory would interpret such a curve as forecasting higher rates, perhaps because of lower inflation, in the future. O C. The yield curve is clearly downward sloping, as was seen in the 1970s. Expectations theory would interpret such a curve as forecasting lower rates, perhaps because of lower inflation, in the future. OD. The yield curve is clearly upward sloping, as was seen in the 1970s. Expectations theory would interpret such a curve as forecasting lower rates, perhaps because of lower inflation, in the future
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