Factors that impact the yield curve

• There are three factors that affect the shape of a treasury yield curve (r*t, IPt, and MRP)

Five that shape corporate yield curve (r*t, IPt, MRP, DPRt, and LPt) The yield curve reflects

the aggregate of the impacts from these factors.

Suppose real risk free rate and inflation are level through the future. Consider all that affect yield curve.

Identify which of the following shapes the US Treasury yield curve.

(Pick all that apply)

• Downward sloping yield curve
• Invert yield curve
• Upward sloping yield curve

2. Which are true or false

If inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury yield curve is downward sloping (Assume MRP = 0) (True of false)

The default risk on walgreens short term debt will be higher than the default risk on its long term debt (True of false)

The yield curve for a BBB rated corporate bond is expected to be above the US treasury bond yield curve (True of false)

Yield curves of highly liquid assets will be lower than yield curve of relatively illiquid assets (True of false)