Everything Else the Same, If the Yield Curve Is Downward

question 9

Multiple Choice

Everything else the same, if the yield curve is downward sloping, what is the yield to maturity on a 10-year Treasury coupon bond, relative to that on a one-year Treasury bond (T-bond) ?

• A)The yield on the 10-year bond is less than the yield on a one-year bond.
• B)The yield on a 10-year bond will always be higher than the yield on a one-year bond because of maturity premiums.
• C)It is impossible to tell without knowing the coupon rates of the bonds.
• D)The yields on the two bonds are equal.
• E)It is impossible to tell without knowing the relative risks of the two bonds.

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