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Business, 18.10.2019 23:00 emmdolzx

The real risk-free rate is expected to remain constant at 3% in the future, a 2% rate of inflation is expected for the next 2 years, after which inflation is expected to increase to 4%, and there is a positive maturity risk premium that increases with years to maturity. given these conditions, which of the following statements is correct? a) the yield on a 2-year t-bond must exceed that on a 5-year t-bond. b) the yield on a 5-year treasury bond must exceed that on a 2-year treasury bond. c) the yield on a 7-year treasury bond must exceed that of a 5-year corporate bond. d) the conditions in the problem cannot all be true--they are internally inconsistent. e) the treasury yield curve under the stated conditions would be humped rather than have a consistent positive or negative slope.

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