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.

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