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 implies that long-term bond yields are higher than short-term bond yields. Therefore, short-maturity bonds yield less than long-maturity bonds. Choice A is incorrect because high coupon rates are not necessarily related to the yield curve shape. Choice B is incorrect because pricing of bonds above par value is not directly related to the yield curve shape. Choice D is incorrect because an increase in interest rates typically leads to a decrease in bond prices, regardless of their maturity.

When the Yield Curve Is Upward-Sloping,then