Use the following Table to answer these questions. The table provides the expected yield to maturity for commercial paper and tre
Year 1-year Commercial Paper 1-year Treasury Bills
Yield to Maturity (expected)
2018 6% 4%
2019 8% 3%
2020 10% 2%
a) Calculate the risk spread for each year.
b) Based on your calculation from part a), is there evidence of an expected flight to quality? Briefly explain.
c) Assume the yields to maturity in 2018 and 2020 are equilibrium in the commercial paper and Treasury bill markets. Briefly explain what likely happened with regard to supply and demand for each market.