Question

Investors and finance professionals watch the Yield Curve everyday because it is such an important indicator...

Investors and finance professionals watch the Yield Curve everyday because it is such an important indicator of which of the following?

a. How much money the Federal Government needs to raise to balance the budget

b. How big a maturity risk premium investors are demanding

c. How big a liquidity risk premium investors are demanding

d. The average yield on corporate bonds

e. The direction the stock market is going

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Answer #1

The correct answer is Option B

Yield curve measures the relationship among the securities the interest rate and different maturity periods and they also have exact credit quality.

There are different types of yield curves, Normal Yield curve which is Upaward Slope refers that the longer the maturity period of the security the higher the premium will be and the downward slope yield curve refers the condition when the shorter term period securities have higher premium over longer rate which shows that the economy is going to be in recession.

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