Which of the following statements is correct?
A. The probability of default is higher on short-term bonds than on long-term bonds.
B. Reinvestment rate risk is lower, other things held constant, on long-term than on short-term bonds.
C. According to the market segmentation theory, the yield curve is expected to slope downward.
D. Borrowers prefer to borrow on a short-term basis, as a result, the yield curve is downward sloping.
E. If the inflation is expected to decrease in the future, then the yield curve should have an upward slope.
Answer: B
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