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.