If the Yield Curve Is Downward Sloping,what Is the Yield

question 30

Multiple Choice

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 1-year T-bond?

• A) The yield on the 10-year bond is less than the yield on a 1-year bond.
• B) The yield on a 10-year bond will always be higher than the yield on a 1-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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Definitions:

Neutralization Reactions

Chemical reactions in which an acid and a base react quantitatively to form water and a salt.

Water

A transparent, tasteless, odorless, and nearly colorless chemical substance, which is the main constituent of Earth's hydrosphere and the fluids of all known living organisms.

Salt

A general term for ionic compounds that result from the neutralization reaction of an acid and a base, commonly used as sodium chloride in cooking.

Sodium Chloride

A compound commonly known as table salt, consisting of sodium and chloride ions.