Suppose that the yield curve is upward sloping. Which of the following statements is TRUE?
A. The forward rate yield curve is above the zero-coupon yield curve, which is above the coupon-bearing bond yield curve.
B. The forward rate yield curve is above the coupon-bearing bond yield curve, which is above the zero-coupon yield curve.
C. The coupon-bearing bond yield curve is above the zero-coupon yield curve, which is above the forward rate yield curve.
D. The coupon-bearing bond yield curve is above the forward rate yield curve, which is above the zero-coupon yield curve.
Answer:A
With an upward sloping curve, the coupon curve is the lowest, the zero-coupon curve is above the coupon curve and the forward curve is above the zero-coupon curve. The order is reversed if the curve is downward sloping.