Question 3 (10 points): Term Structure and Cost of Capital

Draw the current term structure of interest rates (as of today). Label both the axes and the points on the curve. You can get this information from Bloomberg.com.

Also include the term structure in early 1980s and early 1990s. You can get this information from the web or from your book.

Explain in less than 10 lines

• What does the current term structure, as you have graphed, imply for the future path of

  future interest rates?

• What causes the future change in rates in your opinion?

• Why was the term structure different in the 1980s?

• Why is the term structure important for valuing financial asset prices?