Maturity Risk Premiums
How do maturity risk premiums affect the yield curve? If the inflation rate is expected to increase, would this increase or decrease the slope of the yield curve?
If the inflation rate is expected to remain constant at the current level in the future, would the yield curve slope up, down, or be horizontal? Consider all factors that affect the yield curve, not just inflation
Explain why corporate bonds’ default and liquidity premiums are likely to increase with their maturity.
Explain why corporate bonds always yield more than Treasury bonds and why BBB-rated bonds always yield more than AA-rated bonds.
How do maturity risk premiums affect the yield curve? If the inflation rate is expected to increase, would this increase or decrease the slope of the yield curve?
