# Question: The following pattern for one year Treasury bills is expected over

The following pattern for one-year Treasury bills is expected over the next four years:

Year 1 -5%

Year 2 -7%

Year 3-10%

Year 4-11%

a. What return would be necessary to induce an investor to buy a two-year security?

b. What return would be necessary to induce an investor to buy a three-year security?

c. What return would be necessary to induce an investor to buy a four-year security?

d. Diagram the term structure of interest rates for years 1 through 4.

Year 1 -5%

Year 2 -7%

Year 3-10%

Year 4-11%

a. What return would be necessary to induce an investor to buy a two-year security?

b. What return would be necessary to induce an investor to buy a three-year security?

c. What return would be necessary to induce an investor to buy a four-year security?

d. Diagram the term structure of interest rates for years 1 through 4.

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