An Inverted Yield Curve

question 35

Multiple Choice

An inverted yield curve

• A) Exists when short-term rates exceed long-term rates.
• B) Exists when long-term rates exceed short-term rates.
• C) Represents the "normal term structure."
• D) Signifies that investors can get higher returns by investing in bonds than by investing in stocks.
• E) Signifies that investors can get higher returns on stocks than on bonds.

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Definitions:

Call Option

A contract which allows an investor the option, without being required, to purchase a stock, bond, commodity, or any other financial instrument at a predetermined price during a certain time frame.

Exercise Price

The specified price at which the holder of an option can buy or sell the underlying asset.

Stock Price

The cost of purchasing a share of a company's stock, determined by supply and demand in the market.

Call Option

A financial contract that gives the buyer the right, but not the obligation, to purchase an asset at a specified price within a certain time frame.