Given the following market data on U.S. Treasury instruments:
- 1-year note yield = 1.83%5-year note yield = 2.79%
- 2-year note yield = 1.99%6-year note yield = 3.04%
- 3-year note yield = 2.21%7-year note yield = 3.58%
- 4-year note yield = 2.42%8-year note yield = 4.18%
And non-changing premiums of 0, .07%, .22%, .39%, .52%, .64%, .75%, 88%, & .98%
a. Calculate the expected expectations yield for a (3,2,1,2) path.
b. Calculate the pure expectations yield for a (1,4,3,) path.
c. Calculate the expected empirical yields for a (2,5,1) path.
d. Calculate the expected expectations yield for a 5-year note purchased at the beginning of year 3.
e. Calculate the expected market yield on a 4-year note purchased at the beginning of year 2.
f. Determine the expectations yield on a 5-year note purchased today.
g. Describe the yield curve and provide a general interpretation of what implies about the economy.