The yields for Treasuries with differing maturities on a recent day were as shown in the table.

a. Use the information to plot a yield curve for this date.

b. If the expectations hypothesis is true, approximately what rate of return do investors expect a 5-year Treasury note to pay 5 years from now?

Maturity Yield

3 months ...........1.41%

6 months ...........1.71

2 years ...........2.68

3 years ...........3.01

5 years ...........3.70

10 years ............4.51

30 years ............5.25

c. If the expectations hypothesis is true, approximately (ignoring compounding) what rate of return do investors expect a 1-year Treasury security to pay starting 2 years from now?

d. Is it possible that even though the yield curve slopes up in this problem, investors do not expect rising interest rates? Explain.