Assume the following: The real risk-free rate, r*, is expected to remain constant at 3%. Inflation is expected to be 3% next year and then to be constant at 2% a year thereafter. The maturity risk premium is zero. Given this information, which of the following statements is CORRECT?   a. A 5-year corporate bond must have a lower yield than a 7-year Treasury security.     b. The yield curve for U.S. Treasury securities will be upward sloping.     c. A 5-year corporate bond must have a lower yield than a 5-year Treasury security.     d. The real risk-free rate cannot be constant if inflation is not expected to remain constant.     e. This problem assumed a zero maturity risk premium, but that is probably not valid in the real world

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Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.