An investor facing an upward-sloping yield curve buys a six-month Treasury bill with the intent of selling it three months later. This investor __________.
A) Has determined that the six-month Treasury bill is underpriced
B) Has determined that the three-month Treasury bill is underpriced
C) Expects long-term interest rates to rise in the next three months
D) Is riding the yield curve
E) Is reluctant to buy short-term securities, fearing a decline in interest rates

Question

Quizplus · Accepted Answer

Riding the yield curve involves buying longer-term securities and selling them before maturity, benefiting from the generally higher yields on longer maturities in an upward-sloping yield curve environment. This strategy does not necessarily reflect expectations about specific security pricing or interest rate movements, but rather takes advantage of the shape of the yield curve itself.

An Investor Facing an Upward-Sloping Yield Curve Buys a Six-Month