Assuming the Yield Curve and the Term Structure Are Both

question 4

Multiple Choice

Assuming the yield curve and the term structure are both upward sloping at all maturities, which of the following will have the highest interest rate as measured by their yield to maturity?

• A) 20-year maturity STRIP bonds.
• B) 2-year maturity Canadian government bonds.
• C) 5-year maturity municipal bonds.
• D) 3-month maturity Canadian T-bills.
• E) Insufficient information.

---

Definitions:

Par Value

The nominal or face value of a bond, stock, or coupon as stated by the issuer, typically not related to its market value.

Yield

The income return on an investment, such as the interest or dividends received, expressed as an annual percentage rate based on the investment's cost or current market value.

Zero-Coupon Bond

A bond that does not pay periodic interest and is sold at a significant discount to its face value, which is paid at the bond's maturity.

Yield To Maturity

The total return anticipated on a bond if it is held until it matures, including both interest payments and the gain or loss incurred if purchased at a price different from its face value.