Doubt 1 in the explanation to “B”, they have said that “An upward sloping curve would be associated with bond risk premiums that are positively, not negatively, related to the consumption hedging benefits of government bonds.”
Long term bonds, which area a poor hedge of consumption, have more risk premium (that is why upward curve), isn’t this relationship negative.
No Abhinav, longer the maturity greater the risk premium which means a +ve relation.
You’re getting confused with bond price which has a -ve relation.
I hope this helps you!
question is asking about correlation between bond risk premium and hedge against consumption. Short term bods, as are a better hedge, have a lower risk premium, and vice-a-versa. Isint that relationship negative?