The prices for four 1000 face amount zero-coupon bonds are as follows:

Price	Term (in years)
943.40	1
747.26	5
558.39	10
311.80	20

Determine which of the following statements describes the yield curve underlying these prices.

• The yield curve is increasing with constant slope.
• The yield curve is flat.
• The yield curve is inverted with constant slope.
• The yield curve is concave upward.
• The yield curve is concave downward

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Solution: B

All prices imply an interest rate of 6% indicating that the yield rate does not change with duration, that is. the yield curve is flat.

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.