Which one of the following statements is true?

Multiple Choice

• A. If the expectation for inflation is that it will steadily increase, the term structure of interest rates will be upward sloping.

• B. If a small rural city issues municipal bonds and there is no active secondary market to sell the bonds, investors will require a higher liquidity premium compared to a bond with a very active secondary market.

• Both A and B are true.

• Neither A nor B are true.