Inflation is expected to increase steadily over the next 10 years, there is a positive maturity risk premium on both Treasury and corporate bonds, and the real risk-free rate of interest is expected to remain constant. Which of the following statements is correct? 1. The yield on 7-year corporate bonds must exceed the yield on 10-year Treasury bonds.
2. The Treasury yield curve under the stated conditions would be humped rather than have a consistent positive or negative slope.
3. The yield on 10-year Treasury securities must exceed the yield on 7-year Treasury securities
4. The stated conditions cannot all be true they are internally inconsistent.
5. The yield on any corporate bond must exceed the yields on all Treasury ; bonds.