a. If a yield curve slopes upward, then what term (maturity length) of bond pays the highest interest rate?
b. Yield curves are usually upward sloping. According to the expectations theory of the term structure of interest rates, what does that suggest people usually expect short-term interest rates to do in the future?
c. In reality, short-term interest rates fluctuate a lot over time but do not have an upward or downward trend. Explain why this fact, together with your answer to (b.), suggests a flaw in the expectations theory.
d. Can the liquidity (term) premium theory of the term structure of interest rates explain why yield curves usually slope upward? Explain why or why not.