Asked by Carla Reyes on May 11, 2024
Verified
The term structure of interest rates or yield curve is the pattern of interest rate yields for securities that differ only in:
A) default risk.
B) liquidity premiums.
C) the yield to maturity.
D) the length of time to maturity.
Yield Curve
The relationship between interest rates and the term of debt, generally expressed graphically. A normal yield curve is upsloping, reflecting rates that increase with increasing term. An inverted curve is downsloping.
Liquidity Premiums
Additional yield that investors require for holding securities with lower liquidity.
- Explain the term structure of interest rates and the different shapes of the yield curve.
Verified Answer
MA
Matthew AnjorinMay 15, 2024
Final Answer :
D
Explanation :
The yield curve shows the pattern of interest rates for securities with different lengths of time to maturity. Yield curves can provide insights into market expectations for future interest rates, inflation, and economic growth. The other choices (A, B, and C) may contribute to differences in interest rates among securities, but they do not define the shape of the yield curve.
Learning Objectives
- Explain the term structure of interest rates and the different shapes of the yield curve.