Assume the following returns and yields: U.S. T-bill = 8%, 5-year U.S. T-note = 7%, IBM common stock = 15%, IBM AAA Corporate Bond = 12% and 10-year U.S. T-bond = 6%. Based on this information, the shape of the yield curve is ________.

Question

Quizplus · Accepted Answer

The yield curve is downward sloping as the longer-term securities have lower yields than shorter-term securities. This indicates that investors have a pessimistic outlook on the economy, causing them to demand higher yields for longer-term securities as they perceive greater risk.

Assume the Following Returns and Yields: U