Assume That Inflation Is Expected to Decline Steadily in the Future,but

question 39

Multiple Choice

Assume that inflation is expected to decline steadily in the future,but that the real risk-free rate,r*,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 there is a positive maturity risk premium,the Treasury yield curve must be upward sloping.
• D) If inflation is expected to decline,there can be no maturity risk premium.
• E) The expectations theory cannot hold if inflation is decreasing.

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Definitions:

Water

A clear, smell-free, flavorless fluid that constitutes the oceans, lakes, streams, and precipitation, and is foundational to the bodily fluids of living beings.

Price/Earnings Ratio

A valuation metric measuring a company's current share price relative to its per-share earnings, used to evaluate if a stock is over or under-valued.

Net Income

The profit of a company after all operating expenses, taxes, and interest are subtracted from total revenue.