A 10-year corporate bond must have a higher yield than a 5-year Treasury bond. A
ID: 2639326 • Letter: A
Question
A 10-year corporate bond must have a higher yield than a 5-year Treasury bond.
A 10-year Treasury bond must have a higher yield than a 10-year corporate bond.
A 5-year corporate bond must have a higher yield than a 10-year Treasury bond.
The corporate yield curve must be flat.
Since the Treasury yield curve is downward sloping, the corporate yield curve must also be downward sloping.
A 10-year corporate bond must have a higher yield than a 5-year Treasury bond.
A 10-year Treasury bond must have a higher yield than a 10-year corporate bond.
A 5-year corporate bond must have a higher yield than a 10-year Treasury bond.
The corporate yield curve must be flat.
Since the Treasury yield curve is downward sloping, the corporate yield curve must also be downward sloping.
Explanation / Answer
As per the following given statements, since the treasury security has no liquidity premium on the treasury security and on the other hand the bond has a positive liquidity premium.
Thus, the coupon bonds will have higher yield than the treasury security.
Hence, the correct statement is C that is A 5-year corporate bond must have a higher yield than a 10-year Treasury bond.
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