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62515in cusVEs The following yields on U.S. Treasury securities were taken from a recent financial publication: \begin{tabular}{ll} Term & Rate \\ \hline 6 months & 5.1% \\ 1 year & 5.5 \\ 2years & 5.6 \\ 3 years & 5.7 \\ \hline 4years & 5.8 \\ \hline 5 years & 6.0 \\ \hline 10 years & 6.1 \\ \hline 20 years & 6.5 \\ \hline 30 years & 6.3 \end{tabular} a. Plotayield curve based on these data. b. What type of yield curve is shown? c. What information does this graph tell you? d. Based on this yleld curve, if you needed to borrow money for longer than 1 year, would it make sense for you to borrow short-term and renew the loan or borrow long-term? Explain. 5.5\%. Your brother-in-law, a broker at Safe and Sound Securities, has given you the following estimates of current interest rate premlums: Inflation premlum =3.25% Uquidity premium =0.6% Maturity risk premium =1.8% Default risk premlum =2.15% On the basis of these data, what is the real riskfree rate of return? 48 during the next 2 years. Assume that the maturity risk premium is zero. What is the yield on 2 -year Treasury securities? What is the yield on 3 -year Treasury securities? GADEFAUT RISK RREMIUM A Treasury bond that matures in 10 years has a yield of 6%. A 10-year corporate bond has a yield of 8%. Assume that the liquidity premium on the corporate bond is 0.5%. What is the default risk premium on the corporate bond? 65 MATURIMRISKPREMUM The real risk-free rate is 3%, and inflation is expected to be 3% for the next 2 years. A 2-year Treasury security yields 6.2%. What is the maturity risk premium for the 2-year security? 6.6INF1 AMON CROSSRRODUC An analyst is evaluating securities in a developing nation where the inflation rate is very high. As a result, the analyst has been warned not to ignore the cross-product between the real rate and inflation. If the real risk-free rate is 5% and inflation is expected to be 16% each of the next 4 years, what is the yield on a 4 year security with no maturity, default, or liquidity risk? (Hint: Refer to "The Links between Expected Inflation and Interest Rates: A Closer Look" on Page 178.) 675KREMATIONSTHIFORY One-year Treasury securities yield 5\%. The market anticipates that 1 year from now, 1-year Treasury securities will yield 6%. If the pure expectations theory is correct, what is the yield today for 2 -year Treasury securities

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