To answer the following question, use graphs of the markets for corporate bonds and U.S. Treasury bonds. (a) Assume the initial risk premium is iC1 iT1 where iC1 is the initial interest rate on corporate bonds and iT1 is the initial interest rate on Treasury bonds. Suppose new e-Trading protocols are adopted in the corporate bond market, increasing liquidity for these securities.

Show what happens to the risk premium.

Explain the intuition.