Question

Which of the following statements is true?a. The higher the maturity risk premium, the higher the probability that the yield curve will be inverted.b. The most likely explanation for an inverted yield curve is that investors expect inflation to increase in the future.c. If the yield curve is inverted, short-term bonds have lower yields than long-term bonds.d. Even if the pure expectations theory is correct, there might at times be an inverted Treasury yield curve.e. Inverted yield curves can exist for Treasury bonds, but because of default premiums, the corporate yield curve cannot become inverted.

Answer 1

Answer:

b. The most likely explanation for an inverted yield curve is that investors expect inflation to decrease

Explanation:

I have attached an image which plots the behavivour of a yield curve and inflation in a same period. As you can observe, there is an indirect relation between boths curves.