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Assume that yields on U.S. Treasury securities were as follows: a. Select a correct yield curve based on these data. B 9= Interest Rate 9.
Assume that yields on U.S. Treasury securities were as follows: a. Select a correct yield curve based on these data. B 9= Interest Rate 9. Interest Rate C 8. (%) Bused on this yield curve, if you needed to borrow money for longer than 1 year, would it make sense for you to borrow short term and renew the loan or borrow long term? Explain. 1. Even though the borrower reinvests in hicreasing short-term rates, those rates are still below the long-term rate, but what makes the higher longterm rate attractive is the rollover risk that may possibly occur if the short-tim rates 90 even higher than the long-term rate (and that could be for a long timel). I1. Generally, it would make sense to borrow short-term because each year the loan is renewed the interest rate would be higher. 111. Generally, it would make sense to borrow short-term because each year the loan is renewed the interest rate would be lower. IV. Generally, it would make sense to borrow lonig-term because each year the loan is renewed the interest rate would be lower. V. Differences in yieids that may exist between the short-term and long-term cannot be explained by the forces of supply and demand in each market
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