Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Define an inverted yield curve. What does it indicate?
Expert Solution
What is yield curve
A yield curve is a graph that shows the yields of bonds with different maturities. Normally, a yield curve slopes upward, with long-term bonds offering higher yields than short-term bonds. This is because investors demand higher compensation for locking up their money for longer periods of time, and because long-term bonds are exposed to more risks, such as inflation and changes in interest rates.
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