Which of the following statements is CORRECT?
A. The higher the maturity risk premium, the higher the probability that the yield curve will be inverted.
B. The most likely explanation for an inverted yield curve is that investors expect inflation to increase.
C. The most likely explanation for an inverted yield curve is that investors expect inflation to decrease.
D. If the yield curve is inverted, short-term bonds have lower yields than long-term bonds.
E. Inverted yield curves can exist for Treasury bonds, but because of default premiums, the corporate yield curve can never be inverted.
Answer: C
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