The Following Monthly Data of Yields on Five-Year Treasury Bonds

question 66

Multiple Choice

The following monthly data of yields on five-year Treasury bonds comes from the Reserve Bank Bulletin:
$$\begin{array} { | l | l | l | l | l | } \hline 20 \mathrm { xx } / \mathrm { xx } & \text { Jul. } & 7.65 \% & \text { Jan. } & 7.30 \% \\\hline & \text { Aug. } & 7.75 \% & \text { Feb. } & 7.15 \% \\\hline & \text { Sep. } & 7.80 \% & \text { Mar. } & 6.91 \% \\\hline & \text { Oct. } & 7.90 \% & \text { Apr. } & 6.80 \% \\\hline & \text { Nov. } & 7.75 \% & \text { May } & 6.65 \% \\\hline & \text { Dec. } & 7.50 \% & \text { Jun. } & 6.55 \% \\\hline\end{array}$$
What type of yield curve is indicated by the above data set?

• A) Normal yield curve
• B) Inverse yield curve
• C) Humped yield curve
• D) Variable yield curve

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Definitions:

Par Value

The nominal face value of a bond or stock as stated by the issuer, often used to determine interest payments.

Interest Rates

Interest rates are the cost of borrowing money expressed as a percentage of the total amount loaned, influencing economic activity by affecting spending and saving behaviors.

Premium

The amount paid for an insurance policy, or the extra cost for financial instruments or securities about their nominal or face value.

Duration

A measurement of the sensitivity of the price of a bond or other debt investment to changes in interest rates, typically expressed in years.