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Assume That the Risk-Free Zero Rates Are Increasing with Maturity

Question 3

Multiple Choice

Assume that the risk-free zero rates are increasing with maturity (That is,the 6-months zero rate is lower than the one-year zero rate,which is lower than the two-year zero rate,etc) .It must be that:


A) The yield-to-maturity curve for coupon bonds lies below the yield-to-maturity curve for zeros
B) The yield-to-maturity curve for coupon bonds equals the yield-to-maturity curve for zeros
C) The yield-to-maturity curve for coupon bonds lies above the yield-to-maturity curve for zeros
D) The yield-to-maturity curve for coupon bonds lies above the yield-to-maturity curve for zeros for maturities less than one year,but lies below the yield-to-maturity curve for zeros for maturities greater than one year.

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