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.