Assuming that the yield curve and term structure are both flat at all maturities, which of the following debt instruments will probably have the lowest interest rate as measured by its yield to maturity?
A) 20-year maturity Quebec STRIP bonds.
B) 3-month Canadian T-bills.
C) 2-year maturity, high quality municipal bonds.
D) 10-year maturity Canadian government bonds.
E) 20-year, AAA rated corporate bond

Question

Quizplus · Accepted Answer

When the yield curve and term structure are flat, shorter-term debt instruments tend to have lower interest rates than longer-term debt instruments. This is because there is less uncertainty and risk associated with shorter-term investments. Therefore, the 3-month Canadian T-bill is likely to have the lowest interest rate among the given options.

Assuming That the Yield Curve and Term Structure Are Both