1)Fabozzi, 10^thedition, Chapter 6, Problem #12 (15 points) You are a financial consultant. At various times you have heard comments on interest rates from one of your clients. How would you respond to each comment?

a.Respond to: The yield curve is upward-sloping today. This suggests that the market consensus is that interest rates are expected to increase in the future.

b.Respond to: I cant make any sense out of todays term structure. For short-term yields (up to three years) the spot rates increase with maturity; for maturities greater than three years but less than eight years, the spot rates decline with maturity; and for maturities greater than eight years the spot rates are virtually the same for each maturity. There is simply no theory that explains a term structure with this shape.

c.Respond to: When I want to determine the markets consensus of future interest rates, I calculate the forward rates.