In the Foreseeable Future,the Real Risk-Free Rate of Interest,r*,is Expected

question 23

Multiple Choice

In the foreseeable future,the real risk-free rate of interest,r*,is expected to remain at 3%,inflation is expected to steadily increase,and the maturity risk premium is expected to be 0.1(t − 1) %,where t is the number of years until the bond matures.Given this information,which of the following statements is CORRECT?

• A)The yield on 2-year Treasury securities must exceed the yield on 5-year Treasury securities.
• B)The yield on 5-year Treasury securities must exceed the yield on 10-year corporate bonds.
• C)The yield on 5-year corporate bonds must exceed the yield on 8-year Treasury bonds.
• D)The yield curve must be "humped."
• E)The yield curve must be upward sloping.

---

Definitions:

English Common Law

A body of law developed in England that forms the basis for the legal system in English-speaking countries.

Partnership Capital

The total resources or assets contributed by partners to a partnership for starting or maintaining the business operations.

Cash

Money in the form of currency, such as banknotes and coins, which is used for transactional purposes.

Property

A broad term encompassing ownership rights over goods, land, intellectual property, and other tangible or intangible assets.