A US Treasury yield curve is plotted in the following graph:

INTEREST RATE (%)

6

5

4

3

2

1

0

5

10

15

20

25 30

YEARS TO MATURITY

Based on an upward-sloping normal yield curve as shown, which of the following statements is correct?

O There is a positive maturity risk premium.

O If the pure expectations theory is correct, future short-term rates are expected to be higher than current short-term rates.

O Pure expectations theory must be correct.

O Inflation must be expected to increase in the future.