Inflation Is Expected to Increase Steadily Over the Next 10

question 46

Multiple Choice

Inflation is expected to increase steadily over the next 10 years,there is a positive maturity risk premium on both Treasury and corporate bonds,and the real risk-free rate of interest is expected to remain constant.Which of the following statements is CORRECT?

• A) The yield on 10-year Treasury securities must exceed the yield on 7-year Treasury securities.
• B) The yield on any corporate bond must exceed the yields on all Treasury bonds.
• C) The yield on 7-year corporate bonds must exceed the yield on 10-year Treasury bonds.
• D) The stated conditions 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.

---

Definitions:

Evolutionary Theories

Concepts and principles aiming to explain the origins, changes, and diversities of life on Earth through mechanisms such as natural selection and genetic drift.

Subcortical Brain Structures

Regions located beneath the cerebral cortex involved in various functions, including emotion, reward processing, and movement regulation.

Innate Emotions

Basic feelings or emotions that are hard-wired into the brain at birth through evolution.

James-Lange Theory

An early theory of emotion that proposes emotions occur as a result of physiological reactions to events.