Which of the following is typical for a normal yield curve?
A.
short and long term rates are the same
B.
long term rates are lower than short term rates
C.
yields decline as term to maturity increases
D.
short term rates are lower than long term rates
The Answer Is:
D
This question includes an explanation.
Explanation:
A yield curve is a graphical representation of the relationship between the interest rates (or yields) and the term to maturity of different fixed income securities, such as bonds or debentures. A normal yield curve is upward sloping, meaning that the interest rates increase as the term to maturity increases. This is because investors typically demand higher compensation for lending their money for longer periods of time, as they face more uncertainty and risk. Therefore, a normal yield curve implies that short term rates are lower than long term rates.
[: Canadian Investment Funds Course, Unit 5, Section 5.2, , ]
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