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You observe the following curve for Treasury securities: Maturity Yield 1 year 6.5% 2 years 6.3% 3 years 6.0% 4 years 5.8% 5 years 5.5%
You observe the following curve for Treasury securities: Maturity Yield 1 year 6.5% 2 years 6.3% 3 years 6.0% 4 years 5.8% 5 years 5.5% Assume that the pure expectations hypothesis holds. What is your investment return if you plan to lend for 2 years, starting three years from today? Select one: a. 6.40% b. 6.30% c. 5.75% d. 4.30% e. 4.75% If you observe a downward-sloping Treasury yield curve, which of the following scenario seems to be out of place? Maturity year 5 10 20 30 years years years years A. Real risk-free rate 2.5% 2.5% 2.5% 2.5% 2.5% B. Inflation premium 5.2% 5.1% 5.0% 4.8% 4.9% C. Default risk premium 0.0% 0.0% 0.0% 0.0% 0.0% D. Maturity risk premium 0.9% 0.5% 0.3% 0.2% 0.1% E. Liquidity premium 0.0% 0.0% 0.0% 0.0% 0.0% Select one: a. Inflation Premium. b. Maturity risk premium. c. Real risk-free rate. d. Liquidity premium. e. Default risk premium
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