An upward-sloping term structure of interest rates indicates: the real rate of r

Question

An upward-sloping term structure of interest rates indicates:

the real rate of return is lower for short-term bonds than for long-term bonds. there is an indirect relationship between real interest rates and time to maturity. there is an indirect relationship between nominal interest rates and time to maturity. the nominal rate is declining as the real rate rises as the time to maturity increases. the nominal rate is increasing even though the real rate is constant as the time to maturity increases.

Explanation / Answer

An upward sloping yield curve indicates that an investment’s returns are expected to increase over time. In other words, the longer until maturity the higher the returns are expected to be. Thus, if the yield curve is influenced by nominal interest rate expectations then the yield curve would be upward sloping. Even though, the real interest rate is constant.

Thus, the fifth option is correct answer.

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