Assume that interest rates on federal government bonds are as follows:
1 year- 6.5%
2 year- 6.3%
3 year - 6.0%
4 year - 5.8%
5 year- 5.5%
10 year - 5.2%
15 year- 5.0%
20 year- 5.0%
A) Do the theories of the shape of the yield curve offer any insignts into the rate pattern?
B) Discuss the expectations, liquidity preference, and market segmentation theories.