Question: Using Treasury bond and note rates from a recent issue of the Wall Street Journal, fill in the following table to generate a yield curve.

Using Treasury bond and note rates from a recent issue of the Wall Street Journal, fill in the following table to generate a yield curve. Maturity 6 months 1 year 2 years 3 years 5 years 15 years Yield

a. Based on this data, what will be the 1-year, risk-free rate starting one year from today if you believe the unbiased expectations theory?

b. If you believe the liquidity premium theory, do you expect the risk-free rate one year from today to be higher or lower than the number com- puted above?

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