A bond trader observes the following information:• The Treasury yield curve is downward sloping.• Empirical data indicate that a positive maturity risk premium applies to both Treasury and corporate bonds.• Empirical data also indicate that there is no liquidity premium for Treasury securities but that a positive liquidity premium is built into corporate bond yields.On the basis of this information, which of the following statements is most CORRECT? a. The corporate yield curve must be flat. b. Since the Treasury yield curve is downward sloping, the corporate yield curve must also be downward sloping. c. A 10-year Treasury bond must have a higher yield than a 10-year corporate bond. d. A 10-year corporate bond must have a higher yield than a 5-year Treasury bond. e. A 5-year corporate bond must have a higher yield than a 10-year Treasury bond.
A bond trader observes the following information:• The Treasury yield curve is downward sloping.• Empirical data indicate that a positive maturity risk premium applies to both Treasury and corporate bonds.• Empirical data also indicate that there is no liquidity premium for Treasury securities but that a positive liquidity premium is built into corporate bond yields.On the basis of this information, which of the following statements is most CORRECT? a. The corporate yield curve must be flat. b. Since the Treasury yield curve is downward sloping, the corporate yield curve must also be downward sloping. c. A 10-year Treasury bond must have a higher yield than a 10-year corporate bond. d. A 10-year corporate bond must have a higher yield than a 5-year Treasury bond. e. A 5-year corporate bond must have a higher yield than a 10-year Treasury bond.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 21QTD
Related questions
Question
A bond trader observes the following information:
• The Treasury yield curve is downward sloping.
• Empirical data indicate that a positive maturity risk premium applies to both Treasury and corporate bonds.
• Empirical data also indicate that there is no liquidity premium for Treasury securities but that a positive liquidity premium is built into corporate bond yields.
On the basis of this information, which of the following statements is most CORRECT?
• The Treasury yield curve is downward sloping.
• Empirical data indicate that a positive maturity risk premium applies to both Treasury and corporate bonds.
• Empirical data also indicate that there is no liquidity premium for Treasury securities but that a positive liquidity premium is built into corporate bond yields.
On the basis of this information, which of the following statements is most CORRECT?
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