Which of the following statements is CORRECT?
A) If the maturity risk premium (MRP)is greater than zero,the Treasury bond yield curve must be upward sloping.
B) If the maturity risk premium (MRP)equals zero,the Treasury bond yield curve must be flat.
C) If inflation is expected to increase in the future and the maturity risk premium (MRP)is greater than zero,the Treasury bond yield curve must be upward sloping.
D) If the expectations theory holds,the Treasury bond yield curve will never be downward sloping.
E) Because long-term bonds are riskier than short-term bonds,yields on long-term Treasury bonds will always be higher than yields on short-term T-bonds.

Question

Quizplus · Accepted Answer

The statement is true because an upward-sloping yield curve reflects higher yields on long-term bonds, which compensates investors for longer periods of inflation risk. The expectation of higher inflation in the future increases the MRP, further pushing the yield curve upwards. Therefore, statement C is the correct option.

Which of the Following Statements Is CORRECT