Question
Inflation is expected to increase in the future, but the real risk-free rate will remain constant. Which of the following statements is CORRECT, other things
Inflation is expected to increase in the future, but the real risk-free rate will remain constant. Which of the following statements is CORRECT, other things held constant?
a. | If the pure expectations theory holds, the Treasury yield curve must be downward sloping. | |
b. | If the pure expectations theory holds, the Corporate yield curve must be downward sloping. | |
c. | If the pure expectations theory holds, the Treasury yield curve must be upward sloping. | |
d. | If inflation is expected to increase, the maturity risk premium should be larger than inflation. | |
e. | If the pure expectation theory holds, the curve represented is abnormal. |
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