When the yield curve is upward-sloping,then:
A) short-maturity bonds offer the highest 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 investors are demanding a higher yield for long-term bonds because they are taking on more risk. As a result, short-maturity bonds yield less than long-maturity bonds. Therefore, choice C is the best answer. The other choices are incorrect because short-maturity bonds offer lower coupon rates and long-maturity bonds decrease in price when interest rates increase.

When the Yield Curve Is Upward-Sloping,then