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What Is the Shape of the Yield Curve Given the Data

Question 2

Multiple Choice

What is the shape of the yield curve given the data on the three zero coupon bonds in the table below? (Assume that each bond has a face value of $1,000.)  Term  Price  Yield  1 Year $9357% 2 Years $8826.5% 3 Years $8406%\begin{array} { | c | c | c | } \hline \text { Term } & \text { Price } & \text { Yield } \\\hline \text { 1 Year } & \$ 935 & 7 \% \\\hline \text { 2 Years } & \$ 882 & 6.5 \% \\\hline \text { 3 Years } & \$ 840 & 6 \% \\\hline\end{array}


A) Downward sloping
B) Upward then downward sloping
C) Downward then upward sloping
D) Upward sloping
E) Flat

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