Question: Help! 11. Define Term Structure and how it affects interest rates. Rate Liquidity Premium Date Feb 25,2016 Feb 25 2017 Feb 25 2018 Feb 25

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11. Define Term Structure and how it affects interest rates. Rate Liquidity Premium Date Feb 25,2016 Feb 25 2017 Feb 25 2018 Feb 25 2019 Exp[r) Expir) Explr) 3.88% 6.00% 7.48% 8.20% 0.00% 0.20% 0.40% 0.60% b. Use the data above to construct a Yield Curve using the EXPECTATIONS THEORY. Show your results in the blank chart below. c. Use the data above to build a Yield Curve based on the LIQUIDITY PREMIUM THEORY. Show your results in the blank chart below. d. Explain why your results are different. Elaborate on the logic behind the Liquidity Premium Theory. Yield Curves: 1) Expectations Theory; 2) Liquidity Premium Theory 7.00% 6.50% 6.00% 5.50% 5.00% 4.50% 4.00% 3.50%

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