3. Which statement is TRUE According to the Modern Term Structure Theory?

-Since a bond's price sensitivity to interest rates increases with maturity, bond investors demand higher yields on longer-dated bonds as compensation for this risk.

-Expectations Theory compensates investors for the expected default risk of US Government Bonds.

-Real rates can never be negative even during high periods of inflation. Otherwise, you're better off holding your money in a vault rather than buy Government bonds.

-The term or liquidity premium explains the shape of the yield curve resulting from increasing demand for long-dated US Treasury bonds by pension funds and decreasing supply of long-dated bonds issued by the US Government.