An inverted yield curve

An inverted yield curve

-An inverted yield curve

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Exists when short-term rates exceed long-term rates.

Exists when long-term rates exceed short-term rates

Represents the “normal term structure.”

Signifies that investors can get higher returns by investing in bonds than by investing in stocks.

-If the expectations theory of the term structure of interest rates is correct, and if the other term structure theories are invalid, and we observe a downward sloping yield curve, which of the following is a true statement?

Investors expect short-term rates to be constant over time.

Investors expect short-term rates to increase in the future.

Investors expect short-term rates to decrease in the future.

It is impossible to say unless we know whether investors require a positive or negative maturity risk premium.

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