Question: Let us suppose that the term structure is upward sloping. a. Bond A has a higher coupon rate than bond B, and both bonds have

Let us suppose that the term structure is upward sloping.

a. Bond A has a higher coupon rate than bond B, and both bonds have the same time to maturity. Which one of the two has the highest yield to maturity, and why?

b. Suppose that the market expects future short-term rates to decline, and the liquidity premium is negative. There is no default risk. Under these circumstances, could it still be theoretically possible that the term structure is upward sloping? Why?

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