Given the indicated maturities listed in the following table, assume the following yields for U.S. Treasury securities:

Maturity (Years)	1	5	10	20	30
Yield (%)	3.6	5.5	5.5	4.2	4.0

On the following graph, plot the yield curve implied by these interest rates. Place a blue point (circle symbol) at each maturity and interest rate in the table, and the yield curve will draw itself.

Tool tip: Mouse over the points in the graph to see their coordinates.

051015202530109876543210INTEREST RATE (Percent)MATURITY (Years)

1)The graphs yield curve represents yield curve.

2)Based on the yield curve shown, which of the following statements is true?

Interest rates on medium-term maturities are higher than rates on long- and short-term maturities.

A market with a yield curve as shown on the graph has higher rates on debt securities that mature within 10 to 30 years than those with maturities of less than 1 to 5 years.

3)Assume a scenario in which there is no maturity risk premium (MRP = 0%), the real risk-free rate is expected to remain constant, and the yield curve for U.S. Treasury securities is likely to be upward sloping for the next 10 years. Is inflation expected to increase, decrease, or stay the same over the next 10 years?

Decrease

Stay the same

Increase