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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 follow.

U.S. Treasury Security Time to Maturity Yield

A 1 Year 12.6%

B 10 Years 11.2%

C 6 months 13.0%

D 20 Years 11.0%

E 5 Years 11.4%

  1. Draw the yield curve associated with these data.
  2. Describe the resulting yield curve in part a, and explain what it says about the direction of future interest rates under the expectations theory.

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