Question
Churchill Corporation just issued bonds that will mature in 10 years. George Corporation just issued bonds that will mature in 12 years. Both bonds are
Churchill Corporation just issued bonds that will mature in 10 years. George Corporation just issued bonds that will mature in 12 years. Both bonds are standard coupon bonds and cannot be retired early. The two bonds are equally liquid. Which of the following statements is correct?
If the yield curve for Treasury securities is flat, Churchill's bond will have the same yield as George's bonds.
If the yield curve for Treasury securities is upward sloping, George's bonds will have a higher yield than Churchill's bonds.
If the two bonds have the same level of default risk, their yields will also be the same.
If the Treasury yield curve is upward sloping and Churchill has less default risk than George, then Churchill's bonds will have a lower yield.
If the Treasury yield curve is downward sloping, George's bonds will have a lower yield.
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