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  3. suppose that you observe the market prices of the

Suppose that you observe the market prices of the following three zero-coupon bonds, each of...

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Accounting

Suppose that you observe the market prices of the following three zero-coupon bonds, each of which has a face value of $100:

  • Bond A has a maturity of 1 year and is currently priced at $95.24
  • Bond B has a maturity of 2 years and is currently priced at $91.05
  • Bond C has a maturity of 3 years and is currently priced at $87.63

On the basis of this information, what can you speculate about the market's expectations about future economic activity?

a) The yield curve is upward sloping, so an economic contraction is expected

b) The yield curve is downward sloping, so an economic contraction is expected

c) The yield curve is flat so economic activity will be unchanged

d) The yield curve is downward sloping, so economic growth is expected

e) The yield curve is upward sloping, so economic growth is expected

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