"Investors expect inflation to be lower in the future" explains how can a yield curve be flat or downward sloping if a maturity risk premium exists.
Answer: Option B
Step-by-step explanation:
Yield curves monitor the connection of interest rates to the treasury securities of US maturity in a given time. With interest rate changes, the slope, shape, and scale of yield curves can vary over time. The gradient of the yield curve offers a good indication of the path of future short-term interest rates; an upward sloping curve usually suggests that higher future interest rates are expected by financial markets; a downward sloping curve implies perceptions of lower future rates.