The real risk-free rate

Question

Assume the following: The real risk-free rate, r*, is expected to remain constant at 3%. Inflation is expected to be 3% next year and then to be constant at 2% a year thereafter. The maturity risk premium is zero. Given this information, which of the following statements is CORRECT?

Question 1 options:

	1) a. The yield curve for U.S. Treasury securities will be upward sloping.
	2) b. A 5-year corporate bond must have a lower yield than a 5-year Treasury security.
	3) c. A 5-year corporate bond must have a lower yield than a 7-year Treasury security.
	4) d. A 5-year corporate bond must have the same yield as a 7-year Treasury security
	5) e. None of the above statements is corr