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 above.
E)none of the above.

Question

Quizplus · Accepted Answer

An upward sloping yield curve can indicate that interest rates are expected to increase, but it can also incorporate a liquidity premium. Additionally, in some cases, the liquidity premium may become conflated with interest rate expectations, further contributing to an upward slope in the yield curve. Therefore, all of the above choices are correct.

An Upward Sloping Yield Curve