Carlo has asked for a recommendation on the investment of another $10 million in excess cash.
He stated his belief that interest rates would remain unchanged for the next three years because of an unchanging expected inflation rate.
Use the current term structure to gauge interest rate expectations. Following data is from Federal Reserve Statistical Release H.15 to get current spot rates on different maturity Treasury securities.
1 year – 1.54%
2 year – 1.61%
3 year – 1.61%
4 year -1.63%
5 year -1.65%
7 year -1.75%
Would you go by Carol’s view on interest rate remain unchanged for the next 3 years? Why or why not? Plz Explain.
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