Assume that the current corporate bond yield curve is upward sloping,or normal.Under this condition,we could be sure that
A) Long-term interest rates are more volatile than short-term rates.
B) Inflation is expected to decline in the future.
C) The economy is not in a recession.
D) Long-term bonds are a better buy than short-term bonds.
E) Maturity risk premiums could help to explain the yield curve's upward slope.

Question

Quizplus · Accepted Answer

An upward sloping yield curve indicates that long-term interest rates are higher than short-term rates. This could be due to the expectation of higher future inflation, which would decrease the purchasing power of the bond's future cash flows. Additionally, investors may require a higher return for tying up their money for a longer period of time, resulting in a maturity risk premium. Therefore, choice E, maturity risk premiums could help to explain the yield curve's upward slope, is the best option.

Assume That the Current Corporate Bond Yield Curve Is Upward