You observe that the yield on oneyear US Treasury debt is lo

You observe that the yield on one-year U.S. Treasury debt is lower than the yield on five-year U.S. Treasury debt. This is typically true because: Investors require additional compensation since bonds with shorter maturities are always less liquid. The default risk-premium is decreasing Investors expect inflation will be decreasing. Investors demand compensation for accepting the higher interest rate risk of bonds with longer maturities. O The yield curve can never be downward sloping

Solution

Option 4 is correct
The bonds with longer maturity has higher interest rate risk.The long term bonds are very sensitive to interest rate risk.