A Bond Trader Observes the Following Information: the Treasury

question 30

Multiple Choice

A bond trader observes the following information: The Treasury yield curve is downward sloping. Empirical data indicate that a positive maturity risk premium applies to both Treasury and corporate bonds. Empirical data also indicate that there is no liquidity premium for Treasury securities but that a positive liquidity premium is built into corporate bond yields. On the basis of this information,which of the following statements is most CORRECT?

• A) A 10-year corporate bond must have a higher yield than a 5-year Treasury bond.
• B) A 10-year Treasury bond must have a higher yield than a 10-year corporate bond.
• C) A 5-year corporate bond must have a higher yield than a 10-year Treasury bond.
• D) The corporate yield curve must be flat.
• E) Since the Treasury yield curve is downward sloping,the corporate yield curve must also be downward sloping.

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Definitions:

Influenced

The process by which an individual's attitudes, beliefs, or behaviors are altered by the presence or actions of others.

Reference Groups

Groups that individuals compare themselves to or use as a standard for evaluating their own values, attitudes, and behaviors.

Interpersonal Group Therapy

A form of therapy focusing on the interactions and relationships among group members, to address and improve mental health issues.

Psychodrama

A form of therapy where people act out their experiences and emotions as part of a group to achieve catharsis or insight.