Asked by Matthew Mihatov on Jun 09, 2024
Verified
The "yield curve":
A) always has a positive slope.
B) shows the relationship between default risk and the return on securities.
C) has constant slope and height over time.
D) a and b
E) None of the above
Slope
In mathematics and economics, the measure of the steepness or incline of a line, often interpreted as the rate of change of one variable with respect to another.
Default Risk
The risk that a borrower will not make the required payments on their debt obligations, leading to potential losses for lenders or investors.
- Clarify the principle of the term structure of interest rates and the diverse silhouettes of the yield curve.
Verified Answer
LL
Lauren lemkeJun 12, 2024
Final Answer :
E
Explanation :
The yield curve is the relationship between the yield on bonds of the same credit quality but different maturities. It can have a positive or negative slope, or even be flat, depending on the interest rate environment. It does not directly show the relationship between default risk and return, although default risk can affect the yield on bonds in the curve. Finally, the slope and height of the yield curve can and typically do change over time.
Learning Objectives
- Clarify the principle of the term structure of interest rates and the diverse silhouettes of the yield curve.