Which of the Following Statements Is CORRECT

question 75

Multiple Choice

Which of the following statements is CORRECT?

• A) Even if the pure expectations theory is correct,there might at times be an inverted Treasury yield curve.
• B) If the yield curve is inverted,short-term bonds have lower yields than long-term bonds.
• C) The higher the maturity risk premium,the higher the probability that the yield curve will be inverted.
• D) Inverted yield curves can exist for Treasury bonds,but because of default premiums,the corporate yield curve cannot become inverted.
• E) The most likely explanation for an inverted yield curve is that investors expect inflation to increase in the future.

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Definitions:

Stock

A type of financial security that represents a proportion of ownership in a corporation, giving the holder a claim to part of the company's profits and assets.

NDP

Net Domestic Product, a measure of a country's economic output that accounts for depreciation. It represents the total value of all goods and services produced within a country's borders minus the depreciation of its capital goods.

United States

A country in North America known for its large economy and diverse population, officially known as the United States of America.

Underground Economy

Unreported or illegal production of goods and services that is not counted in GDP.