The typical shape for a yield curve isA) gently upward sloping.B) mound shaped.C) flat.D) bowl shaped
Question
The typical shape for a yield curve isA) gently upward sloping.B) mound shaped.C) flat.D) bowl shaped
Solution
The typical shape for a yield curve is A) gently upward sloping. This is because longer-term bonds typically have higher yields than shorter-term bonds to compensate investors for the additional risk of holding a bond for a longer period of time. This is known as the risk premium. Therefore, when plotted on a graph with the yield on the y-axis and the time to maturity on the x-axis, the curve usually slopes upward.
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