The yield on a 30-year U.S. Treasury security is 6.5%; the yield on a 2-year U.S. Treasury bond is 4.0%. This data indicate:
A) the yield curve is downward sloping.
B) the yield curve is flat since the risk premium needs to be added for longer maturities.
C) the yield curve is upward sloping.
D) that people expect inflation to decrease in the future.

Question

Quizplus · Accepted Answer

The yield curve is upward sloping as the yield on the 30-year Treasury security is higher than the yield on the 2-year Treasury bond. This implies that investors demand a higher return for tying up their money for a longer period. It does not necessarily indicate anything about inflation expectations, and the idea that the yield curve is flat due to risk premium is not supported by this data.

The Yield on a 30-Year U