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The following yields on U.S. Treasury securities were taken from a recent financial publication

The following yields on U.S. Treasury securities were taken from a recent financial publication
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Solution Guide / Answer Key:

FINANCE

Problem 6-1 Yield Curves – The following yields on U.S. Treasury securities were taken from a recent financial publication:

Term Rate
6 months 5.1%
1 year 5.5
2 years 5.6
3 years 5.7
4 years 5.8
5 years 6.0
10 years 6.1
20 years 6.5
30 years 6.3

a. Plot a yield curve based on these data.
b. What type of yield curve is shown?
c. What information does this graph tell you?
d. Based on this yield curve, if you needed to borrow money for longer than 1 year, would it make sense for you to borrow short-term and renew the loan or borrow long-term? Explain.

 

FILE: MS WORD

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