An upward sloping yield curve
A)may be an indication that interest rates are expected to increase.
B)may incorporate a liquidity premium.
C)may reflect the confounding of the liquidity premium with interest rate expectations.
D)All of the options
E)None of the options

Question

Quizplus · Accepted Answer

One of the problems of the most commonly used explanation of term structure, the expectations hypothesis, is that it is difficult to separate out the liquidity premium from interest rate expectations.

An Upward Sloping Yield Curve