PLEASE answer to all questions clearly~!! Ql. Assume the following term structur

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PLEASE answer to all questions clearly~!!

Ql. Assume the following term structure of interest rates: The YTM on 1-year T-bills = 2%, The YTM on 3-year T-bonds = 5%, The YTM on 5-year T-bonds = 4% Discuss how each of the a) Expectations b) Segmented markets and c) Liquidity premium theories of the term structure of interest rates will explain the above yield curve. Q2. Time Period (Expected) Yield on 1-Year Bonds Liquidity Premium Int Today 5.0% 0% 5 years from now 5.1% 0.2% 10 years from now 5.2% 0.4% 15 years from now 5.3% 0.6% 20 years from now 5.4% 0.8% a) Obtain the hypothetical yield curve, assuming that the expectations theory of term structure holds true. b) Obtain the hypothetical yield curve, assuming that the liquidity premium theory of term structure holds true. Q3. Explain with the help of demand supply diagrams what would happen to the YTM on Initech s bonds if its ratings were changed from AA to AAA. Q4. To bail out the US auto industry, the Treasury dept. bought preference shares in some of the big auto companies, in 2008. With the help of demand and supply diagrams, explain how this may have affected the risk premiums paid by the auto-bonds over comparable T-bonds, then.

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