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Suppose that the yield on 1-year Treasury securities is 2.25%, 2-year securities yield 2.10%, 3year securities yield 2.05%, and 4-year securities yield 1.95%. There is
- Suppose that the yield on 1-year Treasury securities is 2.25%, 2-year securities yield 2.10%, 3year securities yield 2.05%, and 4-year securities yield 1.95%. There is no maturity risk premium.
- Does this situation describe an upward sloping, downward sloping, or flat yield curve?
- Based on the pure expectations theory of the yield curve, what do markets believe the yield on a 1-year Treasury security will be one year from now?
- Based on the pure expectations theory of the yield curve, what do markets believe the yield on a 2-year Treasury security will be 2 years from now?
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