There are 3 term securities available with the following series of 1-year interest rates:

Security A: 4%, 5%, 3%, 3%, 4%

Security B: 4%, 2%, 3%, 5%, 6%

Security C: 5%, 3%, 3%, 4%, 2%

Assume the expectations theory (without uncertainty) of the term structure is correct:

(a) Calculate the term structure interest rates for maturities of 1 to 5 years, for all 3 securities.

(b) Draw the yield curves for the 3 term securities of length 1 to 5 years.

(c) Which security, if you must choose 1, will you buy if you plan to have it mature in 3 years? How about 5 years?

(d) Can you do better than part c if you are allowed to be creative with your securities portfolio?