The Normal Yield Curve Suggests

question 71

Multiple Choice

The normal yield curve suggests

• A)that reinvestment risk is higher for higher coupon rates.
• B)that selecting short-term maturities for borrowing and long term for investing will be profitable.
• C)that interest rate risk is lowest for longer-term bonds.
• D)that short-term bonds give the best risk return trade-off.

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Definitions:

Over-Valued

A term that describes securities or assets whose market price is considered too high relative to their intrinsic value or financial performance.

Insurance Settlement

The payment made by an insurance company to a policyholder following a claim, to cover losses or damages.

Present Value

The current value of a future amount of money or stream of cash flows, given a specified rate of return.

Investment

The allocation of resources, such as capital or time, in the expectation of generating an income or profit.