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Ivenika [448]
3 years ago
5

The real risk-free rate is expected to remain constant at 3% in the future, a 2% rate of inflation is expected for the next 2 ye

ars, after which inflation is expected to increase to 4%, and there is a positive maturity risk premium that increases with years to maturity. Given these conditions, which of the following statements is CORRECT?
A) The yield on a 2-year T-bond must exceed that on a 5-year T-bond.

B) The yield on a 5-year Treasury bond must exceed that on a 2-year Treasury bond.

C) The yield on a 7-year Treasury bond must exceed that of a 5-year corporate bond.

D) The conditions in the problem cannot all be true--they are internally inconsistent.

E) The Treasury yield curve under the stated conditions would be humped rather than have a consistent positive or negative slope.
Business
1 answer:
atroni [7]3 years ago
5 0

Answer:

B) The yield on a 5-year Treasury bond must exceed that on a 2-year Treasury bond.

Explanation:

The yield on 5-year Treasury bond must be higher than a 2-year Treasury bond. This is because the expected inflation rate after 2-years will be constant at 4% and there is also a maturity risk premium which increase with the increase in maturity of the bond. Therefore, the correct answer is option B.

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2 years ago
Participation in sport keeps youths off the street and out of trouble. This is central to which explanation of the relationship
inn [45]

Complete/Correct Question:

Participation in sport keeps kids off the street and out of trouble. This is central to which explanation of the relationship between organized sport and delinquency?

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Explanation:

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