If the Treasury Yield Curve Is Downward Sloping,how Should the Yield

question 74

Multiple Choice

If the Treasury yield curve is downward sloping,how should the yield to maturity on a 10-year Treasury coupon bond compare to that on a 1-year T-bill?

• A) The yield on a 10-year bond would be less than that on a 1-year bill.
• B) The yield on a 10-year bond would have to be higher than that on a 1-year bill because of the maturity risk premium.
• C) It is impossible to tell without knowing the coupon rates of the bonds.
• D) The yields on the two securities would be equal.
• E) It is impossible to tell without knowing the relative risks of the two securities.

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Definitions:

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