Question

For a given class of similar-risk securities, what does each of the following yield curves reflect about interest rates: (a) downward sloping, (b) upward sloping, and (c) flat?
What is the "normal" shape of the yield curve?

Answer 1

Answer:

The slope of the yield curves predicts future interest rate changes and economic activity.

Explanation:

a) The Upward Sloping Curves indicates yields on longer-term bonds may continue to rise, predicting an economic expansion.

b) The downward sloping curves suggests yields on longer term bonds may continue to fall, predicting an economic recession.

c) The flat yield curve arise from normal or inverted yield curve and is in transitioning from recession to recovery.

The upward sloping curve is the normal shape of the yield curve

Answer 2

The interest charge is the price of money charged to a borrower at the time of loan sanction. The yield curve is a plot of interest rates and maturity.

For a given class of similar risk securities the following yield curves represents:

(a) Downward-sloping:

• It indicates an economic slump and is inverted. In this, the brief-term interest rates exceed the high term rates.

• It may continue to fall.

(b) Upward sloping:

• In this type, the long term bonds may proceed to increase it symbolizes of economic development.

• It is also called a normal yield curve.

(c) Flat:

• It designates a similar yield over all the maturity.

• It arises from the inverted or the normal curve and transits from collapse to recovery.

To learn more about yield curves follow the link:

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