Question

(1) Please explain what it means to the yield to maturity on a
10-year Treasury bond relative to that on a 1-year T-bond, when a
yield curve is **upward** sloping?

(2) Could you explain what factors help make the yield curve upward sloping and how?

Answer #1

2. Factors causing upward sloping curve

1. Short term bonds have higher demand as compared to long term
bonds. This causes price of short term bonds to be higher and risk
or YTM to be lower as compared to long term bonds.

2. Maturity Risk: 10 Year bond would have higher maturity risk as
compared to short term bond as a result YTM of long term bond would
be higher leading to upward sloping.

3. Liquidity Risk : Short term bonds have lower liquidity risk as
compared to long term bonds. Hence YTM of short term bonds is
lower. This causes upward sloping.

Consider two $1000 par treasury bonds that are zero-coupon: (i)
a 1-year bond with a yield to maturity of 2%; (ii) a 2-year bond
with a yield to maturity of 4%.
The yield curve is??:
A) Upward sloping
B) Downward sloping
C) Flat
What is the 1-year forward rate (f1,2) based on the expectations
model? In other words, what is the expected 1-year rate starting in
one year from now and going one year? (to the nearest whole
percent)
A)...

1. A Treasury bond has a 10% annual coupon and a 10.5%
yield to maturity. Which of the following statements is CORRECT?
*
a. The bond sells at a price below par.
b. The bond has a current yield less than 10%.
c. The bond sells at a discount.
d. a & c.
e. None of the above
2. J&J Company's bonds mature in 10 years, have a par value of
$1,000, and make an annual coupon interest payment of...

a 10 year zero coupon bond with a yield to maturity of 5% has a
face value of $1000. An investor purchases this bond when it is
initially traded, and then sells it five years later. What is the
rate of return of this investment, assuming the yield to maturity
does not change? Answers say 4.01% can someone please explain this
and show their working? Thank you.

5-year Treasury bond has a 4.2% yield. A 10-year Treasury bond
yields 6.1%, and a 10-year corporate bond yields 8.3%. The market
expects that inflation will average 2.4% over the next 10 years
(IP10 = 2.4%). Assume that there is no maturity risk premium (MRP =
0) and that the annual real risk-free rate, r*, will remain
constant over the next 10 years. (Hint: Remember that the default
risk premium and the liquidity premium are zero for Treasury
securities: DRP...

A 5-year Treasury bond has a 3.5% yield. A 10-year Treasury bond
yields 6.4%, and a 10-year corporate bond yields 9%. The market
expects that inflation will average 3.3% over the next 10 years
(IP10 = 3.3%). Assume that there is no maturity risk
premium (MRP = 0) and that the annual real risk-free rate, r*, will
remain constant over the next 10 years. (Hint: Remember that the
default risk premium and the liquidity premium are zero for
Treasury securities:...

A Treasury bond that matures in 10 years has a yield of 5.75%. A
10-year corporate bond has a yield of 9.50%. Assume that the
liquidity premium on the corporate bond is 0.65%. What is the
default risk premium on the corporate bond? Round your answer to
two decimal places.
The real risk-free rate is 3.0% and inflation is expected to be
2.25% for the next 2 years. A 2-year Treasury security yields
5.85%. What is the maturity risk premium...

A 5-year Treasury bond has a 3.25% yield. A 10-year Treasury
bond yields 6.1%, and a 10-year corporate bond yields 8.5%. The
market expects that inflation will average 2.1% over the next 10
years (IP10 = 2.1%). Assume that there is no maturity
risk premium (MRP = 0) and that the annual real risk-free rate, r*,
will remain constant over the next 10 years. (Hint: Remember that
the default risk premium and the liquidity premium are zero for
Treasury securities:...

A 5-year Treasury bond has a 4.05% yield. A 10-year Treasury
bond yields 6.8%, and a 10-year corporate bond yields 9.8%. The
market expects that inflation will average 2.55% over the next 10
years (IP10 = 2.55%). Assume that there is no maturity risk premium
(MRP = 0) and that the annual real risk-free rate, r*, will remain
constant over the next 10 years. (Hint: Remember that the default
risk premium and the liquidity premium are zero for Treasury
securities:...

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yields 6.7%, and a 10-year corporate bond yields 9.9%. The market
expects that inflation will average 2.4% over the next 10 years
(IP10 = 2.4%). Assume that there is no maturity risk
premium (MRP = 0) and that the annual real risk-free rate, r*, will
remain constant over the next 10 years. (Hint: Remember that the
default risk premium and the liquidity premium are zero for
Treasury securities:...

A 5-year Treasury bond has a 4.4% yield. A 10-year Treasury bond
yields 6.85%, and a 10-year corporate bond yields 8.4%. The market
expects that inflation will average 1.5% over the next 10 years
(IP10 = 1.5%). Assume that there is no maturity risk
premium (MRP = 0) and that the annual real risk-free rate, r*, will
remain constant over the next 10 years. (Hint: Remember that the
default risk premium and the liquidity premium are zero for
Treasury securities:...

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