We have been given the following data: i). Interest Rate on 1 yr. bond = Four Percent

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Question:

We have been given the following data:

i). Interest Rate on 1 yr. bond = Four Percent
ii). Interest Rate on 2 yr. bond = Five Percent
iii). Interest Rate on 3 yr. bond = Six Percent

a). Calculate the interest rate on a 1 yr. bond, 1 year from now
b). Calculate the interest rate on a 1 yr. bond, 2 years from now
c). Draw yield graph and describe
The interest on a 1 yr. today bond falls to two percent, declines to four percent one yr. from now, finally declines to 4.5 percent 2 yr. years from now.
d). Find the interest rate on a 2 yr. bond now, and a 3 yr. bond now.
e). Sketch and describe yield graph.