The relationship between interest rates or yields and the time to maturity for debt instruments of comparable quality is called:
A) the yield to maturity
B) the term structure of interest rates
C) the maturity risk premium
D) the expectations hypothesis

Question

Quizplus · Accepted Answer

The relationship between interest rates or yields and the time to maturity for debt instruments of comparable quality is called the term structure of interest rates. This includes the yield curve which shows the yields of bonds of different maturities. Choice A "yield to maturity" refers to the total return anticipated on a bond if the bond is held until it matures, while choice C "maturity risk premium" is the extra return demanded by investors to compensate for the additional risk of longer-term bonds. Choice D "expectations hypothesis" is a theory that suggests that the shape of the yield curve reflects investor expectations about future interest rates. While all of these concepts may be related to the term structure of interest rates, the term structure specifically refers to the relationship between interest rates and time to maturity.

The Relationship Between Interest Rates or Yields and the Time