Understanding the Normal Yield Curve

Easy Fixed Income Valuation Term Structure Of Interest Rates

The term structure of interest rates reflects how interest rates vary with different time horizons. Analyzing this structure is crucial for fixed income securities, as it helps investors understand the expected interest rate movements over time.

In the context of a normal upward-sloping yield curve, which of the following statements is most likely true about the term structure of interest rates?

Long-term interest rates are typically lower than short-term interest rates.

Investors demand a premium for holding longer-term bonds due to increased risk and uncertainty.

Short-term rates are more volatile than long-term rates.

Hint

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