Chapter 7 Homework Questions 1. Today's 1-year maturity bond rate is 3%, and the 1-year bond rate is EXPECTED to be 4% next year and 4.25% the year after that. a) Compute the TERM STRUCTURE for bond maturities up to 3 years based on the expectations hypothesis. MATURITY TODAY'S RATE 1-Year 3% 2-Year 3.5% 3-Year I 3.75% b) Plot your term structure on a graph as a YIELD CURVE. 2. Why is an INVERTED YIELD CURVE viewed as a bad sign for the economy? 3. If the rate on a 5-year Aaa corporate bond is 6%, the rate on a 5-year maturity Ban corporate bond is 6.75%, the rate on a 6-year maturity Cas corporate bond is 9.75%, and the rate on a 5- year maturity US Treasury note is 3.5%, what is the RISK PREMIUM for these bonds? Chapter 7 Homework Questions 1. Today's 1-year maturity bond rate is 3%, and the 1-year bond rate is EXPECTED to be 4% next year and 4.25% the year after that. a) Compute the TERM STRUCTURE for bond maturities up to 3 years based on the expectations hypothesis. MATURITY TODAY'S RATE 1-Year 3% 2-Year 3.5% 3-Year I 3.75% b) Plot your term structure on a graph as a YIELD CURVE. 2. Why is an INVERTED YIELD CURVE viewed as a bad sign for the economy? 3. If the rate on a 5-year Aaa corporate bond is 6%, the rate on a 5-year maturity Ban corporate bond is 6.75%, the rate on a 6-year maturity Cas corporate bond is 9.75%, and the rate on a 5- year maturity US Treasury note is 3.5%, what is the RISK PREMIUM for these bonds