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Draw this yield curve and answer the questions below: (10 points) 3 months 2.25 . 6 months 2.20 . . . . . .

 

Draw this yield curve and answer the questions below: (10 points) 3 months 2.25 . 6 months 2.20 . . . . . . 1 year 2.05% 2 years 2.10% 7 years 2.15% 10 years 2.20% 20 years 2.70 30 years 3.0% L T-Bond II. If a bank has offered to give you a 30-year mortgage that is priced at 1.25% above 30-year rate, what is the interest rate on your loan? If you buy a 7-year US T-Note today, what will be your return? III. Assume that the Federal Reserve increased interest rates by 0.50% and the entire yield curve shifted up by 50 basis points across all tenors. What is the new yield for 10-year Treasury Note? IV. Assume that the federal Reserve decreased interest rates by 0.75% and the entire yield curve shifted down by 75 basis points across all tenor. What is the new yield for a 30-year Treasury Bond? V. Based on the original yield curve above, what is the difference between the return on a 2- year note and the return on a 10-year note (In the past a negative 10 -2 has provided a good indication of a recession).

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