Question #5
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 2
Status: Correct
Correct Answer: B
Question
Suppose that the short-term and long-term rates decrease by 75bps while the intermediate- term rates decrease by 30bps. The movement in yield curve is best described as involving changes in the:
Answer Choices:
A. level only
B. level and curvature
C. curvature only
Explanation
The decrease in short-term and long-term rates is an indication of change in level of
interest rates. Because intermediate-term rates change differently than the short-term
and long-term rates, there is also a change in the curvature of the yield curve.