Skip to content

IAI Actuarial Core Principles · Economic Modelling · Models of the term structure of interest rates

Which of the following is a feature of an inverted yield curve?

An inverted yield curve is one where short-term yields are higher than long-term yields, so the curve slopes downward. In this case forward rates fall below spot rates, and it is often read as a sign that interest rates are expected to fall.

  1. ALong-term yields exceed short-term yields
  2. BShort-term yields exceed long-term yieldsCorrect
  3. CAll maturities have identical yields
  4. DForward rates are always above spot rates
  5. Par yields exceed spot rates at all terms

Explanation

An inverted curve slopes downward, so short maturities yield more than long ones. Forward rates then lie below spot rates, which contradicts the fourth option.

Did you get it right without looking?

One question tells you little. A timed set on Models of the term structure of interest rates shows your real accuracy, how long you take and where you lose marks.

Practise Models of the term structure of interest ratesFree diagnostic mock

More Models of the term structure of interest rates questions