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    Question

    Which of the following is a positive yield curve?

    A Yield at the longer end is lower than that at the shorter end of the time axis Correct Answer Incorrect Answer
    B Yield at the longer end is higher than that at the shorter end of the time axis Correct Answer Incorrect Answer
    C Yield at the longer end is equal to that at the shorter end of the time axis Correct Answer Incorrect Answer
    D Yield at the longer end varies than that at the shorter end of the time axis Correct Answer Incorrect Answer
    E None of these Correct Answer Incorrect Answer

    Solution

    The relationship between time and yield on a homogenous risk class of securities is called the Yield Curve. The relationship represents the time value of money - showing that people would demand a positive rate of return on the money they are willing to part today for a payback into the future. A yield curve can be positive, neutral or flat. A positive yield curve, is when the slope of the curve is positive, i.e. the yield at the longer end is higher than that at the shorter end of the time axis. These results, as people demand higher compensation for parting their money for a longer time into the future. A neutral yield curve is that which has a zero slope, i.e. is flat across time.

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