QUESTION 2

Which of the following statements is CORRECT?

a. If inflation is expected to decrease in the future, and if the maturity risk premium (MRP) is greater than zero, then the Treasury 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. long-term bonds are typically riskier than short-term bonds because of the maturity risk, yields on long-term Treasury bonds are typically 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.