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D. Figure below presents the spot yield curves for different scenarios. Please use it to answer parts C and 2.1 0 Scenario 1 T
D. Figure below presents the spot yield curves for different scenarios. Please use it to answer parts C and 2.1 0 Scenario 1 T T T T 1 2 3 5 6 7 Maturity 10 Scenario 3 .2 1 3. * .3 2 1 0 T 2 Scenario 2 T T T T T 4 5 6 7 9 10 Maturity Scenario 4 2 T T 1 2 3 4 5 6 7 Maturity 8 9 10 1 2 3 4 5 6 7 Maturity 8 9 10 C. Using yield curve from Scenario 4, predict (without doing any calculation) whether the 1-year forward rate curve (the curve constructed using 1-year forward rates) will lie above or below the spot rate curve. Explain your answer. [3 marks] D. Explain the term structure of the yield curve under Scenario 2 using the expectations theory. [4 marks]
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