SIE Exam Question 337: Answer and Explanation

Question: 337

An upward sloping yield curve indicates

• A. that yields are falling.
• B. that bond prices are increasing.
• C. the Federal Reserve Board is pursuing a tight monetary policy.
• D. that long-term interest rates are higher that short-term interest rates.

Correct Answer: D

Explanation:

D - An upward sloping, or normal yield curve, indicates that long-term interest rates are higher than short-term interest rates. This is considered normal as investors holding bonds with long-term maturities demand more interest for taking on the increased risk.