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A yield curve shows the relationship between the yield and term to maturity for a number of financial assets, eg government stock. In theory, the yield curve will normally be upward sloping so that long-term financial assets offer a higher yield than short-term financial assets. Which of the following best explains the reason for this? A. The investor must be compensated for the time value of money. B. Interest rates have been increased on a number of occasions in the past year in an attempt to combat high inflation. C. Interest rates are expected to fall in the future. D. The market prices of long-term financial assets will tend to be lower than for short-term financial assets. |