SIE practice questionmediumBonds — Yield Curve
A normal (upward-sloping) yield curve indicates that:
- ALong-term bonds offer higher yields than short-term bonds✓ Correct answer
- BShort-term interest rates are higher than long-term rates
- CAll bonds yield the same regardless of maturity
- DThe economy is likely heading into a recession
Explanation
Why A — Long-term bonds offer higher yields than short-term bonds
A normal yield curve slopes upward, meaning longer-term bonds pay higher yields than shorter-term bonds. This compensates investors for the additional risk of tying up money for longer periods (greater interest rate risk, inflation risk, etc.). An inverted yield curve (A) — where short-term rates exceed long-term rates — is historically associated with upcoming recessions.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 1,867+ SIE questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Spot an error in this question or explanation? Tell us — we fix these fast.
Related Economic Indicators questions
- Which investment is MOST vulnerable to inflation risk?
- How do Treasury Inflation-Protected Securities (TIPS) protect investors from inflation?
- During a period of rising inflation, which asset class historically provides the BEST protection?
- If the yield curve inverts (short-term rates exceed long-term rates), what might this indicate about future economic…
- Which risk is most likely to erode the real value of fixed income payments from a long-term bond?
- A rapidly rising Gross Domestic Product (GDP) most likely indicates which phase of the business cycle?
- Which portfolio is most vulnerable to inflation risk?
- The Producer Price Index (PPI) is best used to measure: