There are three factors that can affect the shape of the Treasury yield curve (r

Question

There are three factors that can affect the shape of the Treasury yield curve (r*t, IPt, and MRPt) and five factors that can affect the shape of the corporate yield curve (rt, IPt, MRPt, DRPty and LP). The yield curve reflects the can affect the shape of the corporate yield curve (r*t, IPt, MRPt, DRPt, and LPt). The yield curve reflects the aggregation of the impacts from these factors. Suppose the real risk-free rate and inflation rate are expected to remain at their current levels throughout the foreseeable future. Consider all factors that affect the yield curve. Then identify which of the following shapes that the U.S. Treasury yield curve can take. Check all that apply. Downward-sloping yield curve Upward-sloping yield curve Inverted yield curve Identify whether each of the following statements is true or false. Statements True False If inflation is expected to decrease in the future and the real rate is expected to remain steady, then the Treasury yield curve is downward sloping. (Assume MRP = 0") The default risk on Walmart's short-term debt will be higher than the default risk on its long-term debt. The yield curve for a AA-rated corporate bond is expected to be above the U.S Treasury bond yield curve. Yield curves of highly liquid assets will be lower than yield curves of relatively illiquid assets

Explanation / Answer

Inverted Yield Curve = When Inflation rate Lower than risk free rate than Upward Yeld Curve in Vise Versa Situation Downward Yield Curve

True / False

1. When Inflation rate is decrease than Yield is Increase and Curve is Upward Moving = Given Statement Is Fasle

2. On same Place Loag term risk is always High compare to Short term = Statement Is False

3. Its Depend on AA rate Corporate bond but in generaly Yield in more in AA rated Bond Compare to risk free Treasury Bond = Statement Is True

4. Yield Curve of Highly liquid asstes is High than relativeli Illiqiud assets = Statement is False

# If the Pure expectation theory is correct than investors have no preference when it comes to the different maturities and risk associated with thwm. and based on Upward Curve Its tru Future Short term rates are expected to be higher than current short term rates. than First statement is Currect

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