Real risk-free rate of interest is expected to contastantat

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The real risk-free rate of interest is expected to remain contastantat 3% for the foreseeable future. However, inflation is expected to steadily increase over the next 20 years, so the Treasury yield curve is up sloping. Assume that the expectations theory holds. You are considering two corporate bonds. That is ,a 5-year corporate bond and a 10 -year corporate bond, each of which has the same default risk and liquidity risk. given this information, which of the following statements is most correct? A- Since the expectations theory holds, this implies that 10-year Treasury bonds must have the same yield as 5-yaer Treasury bonds, B- Since the expectations theory holds, this implies that the 10-year corporate bonds must have the same yield as the 5- year corporate bonds, C Since the expectations theory holds, this implies that 10-year corporate bonds must have the same yield as 10-year Treasury bonds, D-The 10- year Treasury bond must have a higher yield than the 5-year corporate bond, E The 10-year corporate bond must have a higher yield than the 5-year corporate bonds.

Reference no: EM131052309

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