Question

There are three factors that can affect the shape of the Treasury yield curve ( r*ₜ, IPₜ, and MRPₜ ) and five factors that can affect the shape of the corporate yield curve ( r*ₜ, IPₜ, MRPₜ, DRPₜ, and LPₜ ). The yield curve reflects the aggregation of the impacts from these factors. Suppose the real risk-free rate and inflation rate are expected to remain at their current levels throughout the foreseeable future. Consider all factors that affect the yield curve. Then identify which of the following shapes that the U.S. Treasury yield curve can take. Check all that apply.

a) Upward-sloping yield curve
b) Downward-sloping yield curve
c) Inverted yield curve

Answer 1

a) Upward-sloping yield curve

Step-by-step explanation:

The U.S. Treasury yield curve describes the treasury bills, notes and bonds. The U.S. Treasury department issues treasury bills for less than a year. Treasury yield curves can predict market cycles. The risk free rate and inflation rates are anticipated to remain same, the only factor which can effect a yield curve is market risk premium therefore the yield curve will be upward sloping and flat curve.

Answer 2

Step-by-step explanation:

The correct answer is option (a) Upward-sloping yield curve

Step-by-step explanation:

The Treasury yield curve is a curve that describe the treasury bills of a country. It also helps in predicting market cycles. Assuming risk rate and inflation rate remains the same, then market risk is the only factor affected by the curve. Therefore, the shape of the curve becomes upward -sloping.