Which of the following statements is CORRECT?
A) If inflation is expected to increase in the future, and if the maturity risk premium (MRP) is greater than zero, then the yield
Curve will have an upward slope.
B) If the maturity risk premium (MRP) is greater than zero, then the
Yield curve must have an upward slope.
C) 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.
D) If the maturity risk premium (MRP) equals zero, the yield curve
Must be flat.
E) The yield curve can never be downward sloping.

Question

Quizplus · Accepted Answer

If inflation is expected to increase, it generally leads to higher interest rates in the future, contributing to an upward-sloping yield curve, especially when combined with a positive maturity risk premium.

Which of the Following Statements Is CORRECT