The term structure of interest rates is a static function that relates the
A) Term to call and the yield to maturity.
B) Term to maturity and the yield to maturity.
C) Term to call and the yield to call.
D) Term to maturity and the coupon rate.
E) Term to maturity and the current yield.

Question

Quizplus · Accepted Answer

The term structure of interest rates refers to the relationship between the term to maturity of a debt instrument and its yield to maturity. Therefore, choice B (Term to maturity and the yield to maturity) is the best choice. Option A is incorrect because the term to call is not related to the term structure of interest rates. Option C is incorrect because the yield to call is not related to the term structure of interest rates. Option D is incorrect because the term to maturity and the coupon rate do not solely determine the yield to maturity. Option E is incorrect because the current yield is a snapshot of the bond's yield at a specific point in time and does not represent the term structure.

The Term Structure of Interest Rates Is a Static Function