Question

If investors start to worry about growth slowing down in the economy, they may rush to buy treasury debt. which statement on the yield on Treasury notes will you most agree with?

A. Treasury notes are almost to risk-free in theory, so their yields can not change in practice

B. Yield will move from 1.52% to 1.59%

C. The yield on any bond is not subject to market fluctuations so it remains and changed

D. Yield will move from 1.52% to 1.47%

E. The demand for Treasury notes will increase this will affect prices not yields

Answer 1

Solution:

Since the demand of treasury notes increases hence the price of the treasury notes will increase. Since the price and yield has inverse relationship hence the yield will decrease.

So in the given option the correct option could be

D ) Yield decreases from 1.52% to 1.47%

A ) Treasury notes are almost to risk-free in theory, so their yields can not change in practice

This statement is incorrect as yield will change

B )Yield will move from 1.52% to 1.59%

This statement is incorrect as yield will go down

C )The yield on any bond is not subject to market fluctuations so it remains and changed

This statement is incorrect as the yield will depend upon market fluctuations

E) The demand for Treasury notes will increase this will affect prices not yields

This is incorrect as demand will affect both price and yield