If intermediate-term, default-free, pure discount bonds have a higher rate of return than either the comparable shorter-term or longer-term bonds, the term structure of interest rates will be:

Question

Quizplus · Accepted Answer

A humped term structure occurs when intermediate-term bonds have higher yields than both short-term and long-term bonds, creating a peak or "hump" in the yield curve.

If Intermediate-Term, Default-Free, Pure Discount Bonds Have a Higher Rate