Question: (a) Explain fully why one would normally expect the interest rate on longer-term bonds to be higher than that for similar risk short-term bonds. (b)

(a) Explain fully why one would normally expect the interest rate on longer-term bonds to be higher than that for similar risk short-term bonds. (b) Would you expect the interest rate on a 10-year corporate bond rated B- (B minus) to be higher or lower than the interest rate on a 10-year government bond? Explain fully. (c) How would you interpret a flattening of the yield curve?

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