Question
If the risk free rate is expected to remain constant over the next 10 years, Inflation is expected to increase steadily over the same time
If the risk free rate is expected to remain constant over the next 10 years, Inflation is expected to increase steadily over the same time frame, and there is a positive maturity risk premium on both Treasury and corporate bonds, which of the following statements is CORRECT?
The Treasury yield curve under the stated conditions would be humped rather than have a consistent positive or negative slope. | ||
The yield on 10-year Treasury securities must exceed the yield on 7-year Treasury securities. | ||
The yield on any corporate bond must exceed the yields on all Treasury bonds. | ||
The stated conditions cannot all be true they are internally inconsistent. | ||
The yield on 7-year corporate bonds must exceed the yield on 10-year Treasury bonds. |
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