What rate of return do investors expect

Reference no: EM131111808

The yields for Treasuries with differing maturities on a recent day were as shown in the table on page 253.

a. Use the information to plot a yield curve for this date.

b. If the expectations hypothesis is true, approximately what rate of return do investors expect a 5-year Treasury note to pay 5 years from now?
Maturity Yield

3 months ........... 1.41%

6 months ........... 1.71

2 years ........... 2.68

years ........... 3.01

5 years ........... 3.70

10 years ............ 4.51

30 years ............ 5.25

c. If the expectations hypothesis is true, approximately (ignoring compounding) what rate of return do investors expect a 1-year Treasury security to pay starting 2 years from now?

d. Is it possible that even though the yield curve slopes up in this problem, investors do not expect rising interest rates? Explain.

Reference no: EM131111808

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