At any given time, the yield curve is affected by
I. lender preferences.
II. inflationary expectations.
III. liquidity preferences.
IV. short- and long-term supply and demand conditions.
A) I and IV only
B) II, III and IV only
C) I, II and III only
D) I, II, III and IV

Question

Quizplus · Accepted Answer

The yield curve, which plots the interest rates of bonds of equal credit quality but different maturity dates, is influenced by a variety of factors including lender preferences (how lenders perceive the risk over different maturities), inflationary expectations (which affect the real return on bonds), liquidity preferences (investors' preference for more liquid, shorter-term instruments), and the supply and demand conditions for short- and long-term bonds. These factors collectively determine the shape and shift of the yield curve over time.

At Any Given Time, the Yield Curve Is Affected by