Read statement #4 and answer questions 1-3

As a treasurer of a corporation, one of your jobs is to maintain investment in liquid securities such as Treasury securities and commercial paper. Your goal is to earn as high a return as possible, but without taking much of a risk. 1. The yield curve is currently downward sloping, such that 10-year Treasury bonds have an annualized yield 3 percentage points below the annualized yield of three-month T-bills. Should you consider using some of your funds to invest in 10-year Treasury securities? sume that commercial paper is presently offering an annualized yield of 7.5 percent, while Treasury securities are offering an annualized yield of 7 percent. Economic conditions have been stable, and you expect conditions to be very favorable over the next si months. Given this situation, would you prefer to hold T-bills or a diversified portfolio of commercial paper issued by various corporations? 3. Assume that commercial paper typically offers a premium of 0.5 percent above the T-bill rate. Given that your firm typically maintains about $10 million in liquid funds, how much extra will you generate per year by investing in commercial paper versus T-bills? Is this extra return worth the risk that the commercial paper could default? 20 points. 5. Explain how the bond market facilitates a government's fiscal policy, and corporations raising funds. How do you think the bond market could discipline a government and discourage the government from borrowing (and spending) excessively? Also how could the bond market not be attractive for corporate borrowings