III. Interest Rates and the Yield Curve (20 points) Suppose we have the following information about the current yields on Treasury securities: Yield Maturity 396 6-month T-bills 1 year T-notes 5% 2 year T-notes 3 year T-notes 6.596 4 year T-notes 6.8% 1. Please draw a yield curve based on the information (Note: you don't have to be precise when drawing the curve. But make sure you mark the five points on the diagram and write down what the x-and y-axis stand for.) 30 6.8 6.5 X 6% iY ZY s ar 6Y 2. If you spend $10,000 today to buy the 3-year T-notes and hold to maturity, how much will you receive at maturity? 4 10,000*(1 MU= P xl 1 H R XT) -3 = 10,000 (1+BX 3. Calculate the expected short rate for the third year (i.e., from year 2 to year 3) based on the Unbiased Expectations Theory