Star Corp just issued bonds that will mature in 10 years, and Moon Corp issued bonds that will mature in 20 years. Both bonds promise to pay a semiannual coupon, they are not callable or convertible, and they are equally liquid. Further assume that the Treasury yield curve is based only on the pure expectations theory. Under these conditions, which of the following statements is CORRECT?
If Moon's and Star's bonds have the same default risk, their yields must under all conditions be equal.
If the Treasury yield curve is downward sloping, Moon's bonds must under all conditions have the lower yield.
If the yield curve for Treasury securities is flat, Star's bond must under all conditions have the same yield as Moon's bonds.
If the yield curve for Treasury securities is upward sloping, Moon's bonds must under all conditions have a higher yield than Star's bonds.
If the Treasury yield curve is upward sloping and Star has less default risk than Moon, then Star's bonds must under all conditions have a lower yield than Moon's bonds.