Below
is an example of US Treasury yields for various maturities:
6 month: 2.25%
1 year: 2.37%
2 year: 3.15%
5 year: 5.02%
10 year: 5.24%
The curve indicated by these yields is called _____.
a) inverted
b) normal
c) reverse
d) flat
e) treasury
The correct answer is b.
A normal yield curve chart shows longterm debt instruments
having higher yields than shortterm debt instruments.
Sometimes referred to as positive yield curve. The
reason it is "normal" is because you would
expect slightly more risk for holding a bond for a
longer period of time because there is great risk
of default.
An inverted yield curve is when longterm debt instruments
that have lower yields than shortterm debt instruments.
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