1. Consider the shape of the current Treasury Yield Curve.
a. What does shape of the current curve tell us about market's expectation of future interest rates? Describe using liquidity premium theory and expectation theory.
b. What factors might describe market's expectations about future interest rates? Describe using the loanable funds theory.
c. Assume you are working for the mutual fund which is looking to invest in new corporate bond issue. Given your answers to parts a and b, what features would you wish to see included in bond's indenture? What features would you wish to see excluded?