This indicates that bonds with a longer maturity date (for example a 3-year bond compared to a … The yield curve is created below on a graph by plotting yield on the vertical axis and time to maturity on the horizontal axis. In a growing economy, investors demand an additional premium (yield) for longer maturity bonds. This is how the yield curve looks when an economy is growing and investors are confident. C. short-maturity bonds yield less than long-maturity bonds. The reason is simple – longer the tenor, the riskier it is. a. d. The yield curve for stocks must be above that for bonds, but both yield curves must have the same slope. 11. The “Normal” yield curve has an upward slope. Previous question Next question Transcribed Image Text from this Question. A. short-maturity bonds offer high coupon rates. There are two common explanations for upward sloping yield curves. The graph earlier and almost any other yield curve’s graph you see would look ‘upward sloping.’ Upward Slope Yield Curve. b. 5. This is logical considering there is more risk associated with having money tied up for longer periods of time. B. long-maturity bonds are priced above par value. If you take a 2-year bank loan, you would have to pay a lower rate of interest than a 5-year … It can also be said view the full answer. It provides a clear, visual image of long-term versus short-term bonds at various points in time. As an upward-sloping yield curve is normal, the arbitrage opportunities it offers are limited. An upward sloping yield curve means that the yield rises as the maturiy of the security increases. Clearly, in 2004, this makes sense because short-term interest rates are already at or near their lowest level in more than four decades. A flattening of the yield curve usually occurs when there is a transition between the normal yield curve and the inverted yield curve. Yield curves are usually upward sloping asymptotically: the longer the maturity, the higher the yield, with diminishing marginal increases (that is, as one moves to the right, the curve flattens out).. Question 2 What must be the annual coupon rate for a $1000 face value bond with four years until maturity, a price of $983.44, and a yield to maturity of 8%? This means that the yield of a 10-year bond is essentially the same as that of a 30-year bond. Graphical Presentation of Normal Yield Curve. An upward-sloping Treasury yield curve means that the market expects interest rates to decline in the future. A normal, upward sloping yield curve is shown below. A yield curve is simply the yield of each bond along a maturity spectrum that's plotted on a graph. An upward sloping yield curve suggests that financial markets expect short-term interest rates to rise in the future. Humped. D. long-maturity bonds increase in price when interest rates increase. 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