In the Foreseeable Future,the Real Risk-Free Rate of Interest,r*,is Expected

question 3

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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Definitions:

Theory of Mind

The ability to attribute mental states—beliefs, intents, desires, emotions, knowledge, etc.—to oneself and to others and to understand that others have beliefs, desires, intentions, and perspectives that are different from one's own.

False Belief

An understanding that others can hold beliefs or perspectives that are different from one's own, even if those beliefs are incorrect; a critical aspect of theory of mind.

Mental Perspective

An individual's point of view or way of regarding situations, facts, etc., which impacts their thoughts and behaviors.