Question Five Parcent 6 Chart 4. Alternative 10-Year Treasury Yield Forecasts Annual average December BCFF consensus Congressional Budget Office Survey of Professional Forecasters Term structure model 3 1 2013 2014 2015 Note: The term structure model for me that the expected real rate and term pretium component of the 10-year nominal yield as shown in ehari 2 revert to their respective 2016 2017 pre-crisis means over 5-year period while the expected inflation component remains constant at the level at the end of 2012. Source: For December BCFF consensus Blue Chip Financial Forecasts (BCFF) survey, December 2012: for Congressional Budget Office Congressional Budget Ollice (2013), The age and Fire C Piscal Year 2017 - 202.3 (Washington CSD), February 5,for Survey of Professional Forecaster, Survey of Professional Forecast for 2015:01 In 2013, Chart 4 displays four different forecasts of the evolution of the 10-year Treasury yield over the coming years. The black line is the forecast reported in the December 2012 Blue Chip Financial Forecasts survey. The green line gives the Congressional Budget Office forecast published in February. The blue line presents the median from the Survey of Professional Forecasters, as reported in the first quarter of this year. Finally, the purple line shows a forecast based on the term structure model used to decomposition the 10- year yield. While these forecasts embody a wide range of underlying models and assumptions, the basic message is clear-- long-term interest rates are expected to rise gradually over the next few years, rising to around 3 percent at the end of 2014. The forecasts in chart 4 imply a total increase of between 200 and 300 basis points in long-term yields between now and 2017. Compare and explain the disparity between the above forecasts and the actual long term 10-year Government Bond Yields. (15 points) FRED - Long-Term Government Bond Yields: 10-year Main (including Benchmark for the United States 3.0 23 24 2.2 20 1.8 1.6 14 Jul 2013 Jan 2014 2014 Lan 2015 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017