Question: The following pattern for one-year Treasury bills is expected over the next four years: Year 1: 1% Year 2: 2% Year 3: 2.5% Year 4:

The following pattern for one-year Treasury bills is expected over the next four years: Year 1: 1% Year 2: 2% Year 3: 2.5% Year 4: 3%

a. What return would be necessary to induce an investor to buy a

i. two-year security

ii. three-year security

iii. four year security

b. Graph the term structure of interest rates for years 1 through 4.

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