SIE Exam Question 47: Answer and Explanation

Question: 47

Which of the following statements is true regarding a downward-sloping yield curve?

• A. It indicates that yields tend to increase with longer maturities.
• B. It indicates that rates for short- and long-term loans are essentially the same.
• C. It indicates that intermediate term rates are the highest.
• D. It indicates that short-term rates are higher than long-term rates.

Correct Answer: D

Explanation:

An inverted, or downward-sloping, yield curve indicates that short-term rates are higher than long-term rates. A normal, upward-sloping yield curve indicates that yields tend to increase with longer maturities. A flat yield curve indicates that interest rates are similar across all available terms. A humped, or bell-shaped, curve indicates that medium-term (intermediate) rates are higher than either short- or long-term rates.