The term structure of interest rates
A) changes daily to reflect current competitive conditions in the money and capital markets.
B) plots returns for securities of different risk.
C) shows the relative interest rate spread between bonds with different risk ratings such as AAA, AA, A, BBB, and so on.
D) depicts interest rates for T-bills over the last year.

Question

Quizplus · Accepted Answer

The term structure of interest rates refers to the relationship between interest rates and their maturity or time to maturity. It reflects the current competitive conditions in the money and capital markets and changes daily based on supply and demand factors. Therefore, option A is the correct answer. Option B refers to the risk-return tradeoff, while option C refers to yield spreads between bonds of different credit quality, and option D represents a historical record of T-bill interest rates.

The Term Structure of Interest Rates