4. The following questions address the term structure of interest rates. a. Suppose people expect the...

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4. The following questions address the term structure of interest rates. a. Suppose people expect the interest rate on one-year bonds for each of the next four years to be 4%, 5%, 6%, and 7%. Calculate the implied interest rate on bonds with a maturity of one-year, two- years, three-years, and four-years if the expectations theory of the term structure of interest rates is correct. b. Plot the yield curve generated by this data if the expectations theory of the term structure of interest rates is correct. Interest Rate 6% 596 4% 39 2% 1% o 1 2 3 4 5 Term to Maturity in Years c. Can the yield curve you derived in b above be used to explain why yield curves almost always slope upward? Explain. 4. The following questions address the term structure of interest rates. a. Suppose people expect the interest rate on one-year bonds for each of the next four years to be 4%, 5%, 6%, and 7%. Calculate the implied interest rate on bonds with a maturity of one-year, two- years, three-years, and four-years if the expectations theory of the term structure of interest rates is correct. b. Plot the yield curve generated by this data if the expectations theory of the term structure of interest rates is correct. Interest Rate 6% 596 4% 39 2% 1% o 1 2 3 4 5 Term to Maturity in Years c. Can the yield curve you derived in b above be used to explain why yield curves almost always slope upward? Explain.