Assume the Following Returns and Yields: U

question 220

Multiple Choice

Assume the following returns and yields: U.S. T-bill = 8%, 5-year U.S. T-note = 7%, IBM common stock = 15%, IBM AAA Corporate Bond = 12% and 10-year U.S. T-bond = 6%. Based on this information, the shape of the yield curve is ________.

• A) upward sloping
• B) downward sloping
• C) flat
• D) normal

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Definitions:

Discount Window

The discount window is a central banking facility that allows financial institutions to borrow reserves, usually short-term, at a predetermined interest rate, to maintain liquidity.

Negative Excess Reserves

Refers to a situation where a bank's actual reserves fall short of the required reserves; although not typical, it would indicate financial stress or unusual circumstances.

Discount Rate

The rate at which the Federal Reserve lends to commercial banks and other depository institutions through its discount window.

Federal Funds Rate

The interest rate at which depository institutions lend reserve balances to other depository institutions overnight on an uncollateralized basis.