When the yield curve is upward-sloping, then:
A)Short-maturity bonds offer high coupon rates
B)Long-maturity bonds are priced above par value
C)Short-maturity bonds yield less than long-maturity bonds
D)Long-maturity bonds increase in price when interest rates increase

Question

Quizplus · Accepted Answer

An upward-sloping yield curve indicates that long-term interest rates are higher than short-term interest rates. This means that short-maturity bonds will offer lower yields than long-maturity bonds. Therefore, choice C is the best answer. Choice A is incorrect because short-maturity bonds may offer low coupon rates due to the lower yields. Choice B is incorrect because an above-par value suggests that long-maturity bonds are priced at a premium, which is not necessarily true in an upward-sloping yield curve. Choice D is incorrect because an increase in interest rates would cause bond prices to fall, not rise.

When the Yield Curve Is Upward-Sloping, Then