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YIELD CURVES Assume that yields on U.S. Treasury securities were as follows: Term Rate 6 months 4.69% 1 year 5.49 2 years 5.66 3 years 5.71 4 years 5.89 5 years 6.05 10 years 6.12 20 years 6.64 30 years 6.76 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.

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Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781305635937
BuyFind

Fundamentals of Financial Manageme...

9th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781305635937

Solutions

Chapter
Section
Chapter 6, Problem 1P
Textbook Problem

YIELD CURVES Assume that yields on U.S. Treasury securities were as follows:

Term Rate
6 months 4.69%
1 year 5.49
2 years 5.66
3 years 5.71
4 years 5.89
5 years 6.05
10 years 6.12
20 years 6.64
30 years 6.76
  1. a. Plot a yield curve based on these data.
  2. b. What type of yield curve is shown?
  3. c. What information does this graph tell you?
  4. 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.

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