The yield curve is a graph of the interest rate on bonds of different terms, with the term shown on the horizontal axis and the interest shown on the vertical axis.Based on the discussion in chapter 10, what slope would you expect the yield curve to have?
A)no slope - flat
B)a negative slope - downward-sloping
C)a positive slope - upward-sloping
D)negative at first, then positive

Question

Quizplus · Accepted Answer

According to chapter 10, in normal circumstances, the yield curve should have a positive slope - upward-sloping - since longer-term bonds tend to have higher interest rates to compensate for the additional risk and uncertainty associated with a longer time horizon. However, there may be instances where the yield curve becomes inverted, with shorter-term yields higher than longer-term yields, which is a warning sign of an impending economic downturn.

The Yield Curve Is a Graph of the Interest Rate