In the foreseeable future,the real risk-free rate of interest,r*,is expected to remain at 3%,inflation is expected to steadily increase,and the maturity risk premium is expected to be 0.1(t 1)%,where t is the number of years until the bond matures.Given this information,which of the following statements is CORRECT?
A) The yield on 2-year Treasury securities must exceed the yield on 5-year Treasury securities.
B) The yield on 5-year Treasury securities must exceed the yield on 10-year corporate bonds.
C) The yield on 5-year corporate bonds must exceed the yield on 8-year Treasury bonds.
D) The yield curve must be "humped."
E) The yield curve must be upward sloping.

Question

In the foreseeable future,the real risk-free rate of interest,r*,is expected to remain at 3%,inflation is expected to steadily increase,and the maturity risk premium is expected to be 0.1(t 1)%,where t is the number of years until the bond matures.Given this information,which of the following statements is CORRECT? 
A) The yield on 2-year Treasury securities must exceed the yield on 5-year Treasury securities. 
B) The yield on 5-year Treasury securities must exceed the yield on 10-year corporate bonds. 
C) The yield on 5-year corporate bonds must exceed the yield on 8-year Treasury bonds. 
D) The yield curve must be "humped." 
E) The yield curve must be upward sloping.

Quizplus · Accepted Answer

The Answer of In the foreseeable future,the real risk-free rate of interest,r*,is expected to remain at 3%,inflation is expected to steadily increase,and the maturity risk premium is expected to be 0.1(t 1)%,where t is the number of years until the bond matures.Given this information,which of the following statements is CORRECT? 
A) The yield on 2-year Treasury securities must exceed the yield on 5-year Treasury securities. 
B) The yield on 5-year Treasury securities must exceed the yield on 10-year corporate bonds. 
C) The yield on 5-year corporate bonds must exceed the yield on 8-year Treasury bonds. 
D) The yield curve must be "humped." 
E) The yield curve must be upward sloping.

In the Foreseeable Future,the Real Risk-Free Rate of Interest,r*,is Expected