Question

The term structure of interest rates:

A. graphs the level of coupons by maturity and is also called a yield curve

B. graphs the coupon rate, current yield, and yield to maturity of a bond

C. graphs the level of corporate bond rates based on default risk premiums and maturity

D. graphs the level of interest rates by maturity and is usually upward sloping

Answer 1

The term structure of interest rates is often referred to as a yield curve. It depicts the interest rates of similar quality bonds at different maturity. It is basically a relationship between the short term and long term interest rates.

When it is graphed, it is known as yield curve, which plays major role in identifying the current situation of an economy. It reflects what market participants expect about future changes in interest rates and monetary policy' circumstances.

When long term yields are higher than short term yields, it shows the term structure is upward sloping and is called the normal slope of the yield curve. When short term yields are higher than long term yields it shows the term structure is downward sloping and is called inverted yield curve.

In recent time, the shape of the term structure is upward sloping many a times and there exist a moderate change in the degree of sharpness.

Considering all the above things, we can conclude that option D. is correct.