As of April 11, 2022, Treasury yields were as follows:

1-year 1.85%

2-year 2.50%

3 year 2.73%

5 year 2.79%

10-year 2.79%

30-year 2.84%

Use these yields to answer the questions below.

a. What do the rates above imply about the shape of the yield curve? Explain. (2 points)

b. Using the pure expectations theory of the term structure of interest rates, carefully explain how the general shape of the yield curve described in (a) could come about. (3 points)

c. Use the yields above to estimate the two-year forward rate one year from now (t+1r2). (3 points)

d. Use the yields above to estimate the one-year forward rate two years from now (t+2r1). (3 points)

e. Do your estimates in (c) and (d) support your answer in (a)? Explain. (2 points)