Assume that yields on U$.$S$.$ Treasury securities were as follows: C

D

The correct yield curve is The correct yield curve is

b$.$ What type of yield curve is shown?

c$.$ What information does this graph tell you?

$-$Select$-$

d$.$ Based on this yield curve, if you needed to borrow money for longer than $1$ year, would it make sense for you to borrow short term and renew the loan or borrow long term? Explain.

even higher than the long$-$term rate $($and that could be for a long time!$).$

II$.$ Generally, it would make sense to borrow short$-$term because each year the loan is renewed the interest rate would be higher.

III. Generally, it would make sense to borrow short$-$term because each year the loan is renewed the interest rate would be lower.

IV$.$ Generally, it would make sense to borrow long$-$term because each year the loan is renewed the interest rate would be lower.

V$.$ Differences in yields that may exist between the short$-$term and long$-$term cannot be explained by the forces of supply and demand in each market.

$\begin{array}{cc}\text{T}\text{E}\text{R}\text{M}& \text{R}\text{A}\text{T}\text{E}\\ 6\text{m}\text{o}\text{n}\text{t}\text{h}\text{s}& 4\mathrm{.}66\%\\ 1\text{y}\text{e}\text{a}\text{r}& 5\mathrm{.}33\\ 2\text{y}\text{e}\text{a}\text{r}\text{s}& 5\mathrm{.}68\\ 3\text{y}\text{e}\text{a}\text{r}\text{s}& 5\mathrm{.}73\\ 4\text{y}\text{e}\text{a}\text{r}\text{s}& 5\mathrm{.}81\\ 5\text{y}\text{e}\text{a}\text{r}\text{s}& 6\mathrm{.}02\\ 10\text{y}\text{e}\text{a}\text{r}\text{s}& 6\mathrm{.}20\\ 20\text{y}\text{e}\text{a}\text{r}\text{s}& 6\mathrm{.}49\\ 30\text{y}\text{e}\text{a}\text{r}\text{s}& 6\mathrm{.}71\end{array}$

a$.$ Select a correct yield curve based on these data.