Given the yield curve in question 15, what is the expected direction of future one- year rates? Under what circumstances would one- year rates be expected to decline?

Question 15

Assume that current interest rates on government securities are as follows: one-year rate, 5 percent; two- year rate, 6 percent; three-year rate, 6.5 percent; four- year rate, 7 percent. Graph the yield curve.