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Name:_________________________ ECO 340 820 Money & Banking Homework #4, due Wednesday, 10/19 1. [7, #18] Below is some data for a 5 month period in the U.S. economy. Given the data in the table below, would you say that this economy is heading for a boom or for a recession? Explain your choice using all 3 columns of data and your understanding of the risk and term structure. 3 mo. Tbill 10-yr. Tnote 10-yr. Baa corp January 1% 3% 7% February 1.05% 3.5% 7.2% March 1.1% 4% 7.6% April 1.2% 4.6% 8% May 1.25% 5% 8.2% 2. Suppose the interest rate on one-year bond is 4% today, is expected to be 6% one year from now, and 8% two years from now. Using the expectations hypothesis, plot the yield curve over the next three years in the space below:

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Name:_________________________ECO 340 820 Money & Banking Homework #4, due edne!day, "0#"$1. [7, #18] Below is some data for a 5 month period in the U.S. economy. Gien the data in the ta!le !elow, wo"ld yo" say that this economy is headin# for a !oom or for a recession$%&plain yo"r choice "sin# all ' col"mns of data and yo"r "nderstandin# of the ris( and term str"ct"re.' mo. )!ill 1*+yr. )note 1*+yr. Baa corp,an"ary 1- '- 7-.e!r"ary 1.*5- '.5- 7./-0arch 1.1- 1- 7.2-3pril 1./- 1.2- 8-0ay 1./5- 5- 8./-/. S"ppose the interest rate on one+year !ond is 1- today, is e&pected to !e 2- one year from now, and 8- two years from now.Usin# the e&pectations hypothesis, plot the yield c"re oer the ne&t three years in the space !elow4'. [7, #2] S"ppose the yield on !oth one+year !onds and two+year !onds are the same.Under the li5"idity premi"m theory, wo"ld yo" e&pect the f"t"re yield on the one+year !ond, one year from today, to !e hi#her, lower of the same that today6s one+year !ond yield$%&plain yo"r answer.1. 7escri!e / reasons why stoc( ownership is considered more ris(y than !ond ownership.5. [84 #11,17,18]8onsider the diidend+disco"nt model4a. )he stoc( of 9:; company paid a