A yield curve is a graphical representation of the relationship between the yiel

Question

A yield curve is a graphical representation of the relationship between the yields and the maturities of securides issued by a given borrower in a given currency on a given date. The mathematical relationship between these two variables, the yied and the maturity, is cailed the term structure of interest rates, and the graphical relationship (plotted curve) is called the yield curve. A yield curve can exthibit a variety of shapes, and the general shapes have been given a specific name. Identify the name of the yield curve that matches the pattern described as follows: Name Given to Describe the Yield Curve Description of the Yield Curve The yield curve exhibits an upward-sloping path. Short-term and long-term (for example, 1-year and 30-year) rates are significantly less than intermediate-term (for example, 10-year) rates. The yield curve exhibits a zero siope. Short-term rates are greater than long-term rates. Humped yield curve Flat yield curve Inverted yield curve Normal yield curve Continue without saving 2 5

Explanation / Answer

Answer:

Yield Curve:  
A graph showing the relationship between bond yields and maturities. Corporate yield curves would be above those for treasury securities because corporate yields include default risk premiums and somewhat higher liquidity premiums. The riskier the corporation, the higher its yield curve.

1. Humped yield curve: Short term rates are relatively low, intermediate-term are much higher and long term rates are much lower

2. Normal Yield Curve: Long - term rates are greater than short - term rates

3. Inverted "Abnormal" Yield curve: The yield curve exhibits a downward - sloping curve.

4. Flat yield curve: Long - term rates are equal to short term rates.

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