Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
There are three factors that can affect the shape of the Treasury yield curve (r*tt, IPtt, and MRPtt) and five factors that can affect the shape of the corporate yield curve (r*tt, IPtt, MRPtt, DRPtt, and LPtt). 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 US Treasury yield curve can take. Check all that apply.
Upward-sloping yield curve
Inverted yield curve
Downward-sloping yield curve
Identify whether each of the following statements is true or false.
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Statements
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True
|
False
|
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|---|---|---|---|
| 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.) |
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| The default risk on Walmart’s short-term debt will be higher than the default risk on its long-term debt. |
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|
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| The yield curve for an AA-rated corporate bond is expected to be above the US Treasury bond yield curve. |
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| Yield curves of highly liquid assets will be lower than yield curves of relatively illiquid assets. |
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