Assume the following the real risk-free rate r is expected, Ask an Expert

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Assume the following: The real risk-free rate, r*, is expected to remain constant at 3%. Inflation is expected to be 3% next year and then to be constant at 2% a year thereafter. The maturity risk premium is zero. Given this information, which of the following statements is CORRECT?

Question 1 options:

1)	a. The yield curve for U.S. Treasury securities will be upward sloping.

2)	b. A 5-year corporate bond must have a lower yield than a 5-year Treasury security.

3)	c. A 5-year corporate bond must have a lower yield than a 7-year Treasury security.

4)	d. A 5-year corporate bond must have the same yield as a 7-year Treasury security

5)	e. None of the above statements is corr

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