a. (5p) What explains the spread between the interest rate on a 20-year Treasury bond and a 2-year Treasury note? What explains the difference between a 10-year corporate bond (rated BBB) and a 5-year municipal bond (rated A)?

2. (5p) If a yield curve looks like the ones shown here, what is the market predicting about the movement of future short-term interest rates? What might the yield curve indicate about the markets predictions concerning the inflation rate in the future? Give a separate answer for each yield curve.