The yield on a 2-year T-bond must exceed that on a 5-year T-bond. The yield on a

Question

  

   

                            
           The yield on a 2-year T-bond must exceed that on a 5-year T-bond.                             
           The yield on a 5-year Treasury bond must exceed that on a 2-year Treasury bond.                             
           The yield on a 7-year Treasury bond must exceed that of a 5-year corporate bond.                             
           The conditions in the problem cannot all be true--they are internally inconsistent.                             
           The Treasury yield curve under the stated conditions would be humped rather than have a consistent positive or negative slope.

Explanation / Answer

1. The yield on a 5-year Treasury bond must exceed that on a 2-year Treasury bond.

2. 0.80%

3. If the bond

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