Problem 5-17

Assume that interest rates on federal government bonds are as shown in table. Do the theories of the shape of the yield curve offer any insights into this rate pattern? Discuss the expectations, liquidity preference, and market segmentation theories separately.

1-year	6.8%
2-year	6.4%
3-year	6.1%
4-year	5.7%
5-year	5.3%
10-year	5.2%
15-year	5.0%
20-year	5.0%