Consider the yield curve for August 3rd 2020. a) Does the market expect rates to increase or decrease in the future (one or two sentences, please).

b) According to the unbiased expectations hypothesis, what was the 3-year rate the market expects 7 years from now?

c) Are the rates for 10 and 20 year bonds on the same day (8/3/2020) consistent with the liquidity premium theory? The market segmentation theory?

***Note in my class we learned unbiased expectations hypothesis equation as (1+ rl )2 = (1 + rs1 )(1+ rs2)

Date 1 Mo 2 Mo 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr 08/0 0.09 0.09 0.10 0.11 0.12 0.11 0.13 0.22 0.40 0.56 1.01 1.23 3/20