21. Assume the following zero-coupon yield curve. Which statement about this yield curve (or zero- coupon yield curves in general) is TRUE?

A) This yield curve implies that the bond market expects an economic expansion. B) The yield to maturity of a 5-year default-free coupon bond with annual coupon rate of 5% and face value of $1000 lies between 3% and 5%. C) The bond market expects the future one-year interest rate to increase in this case. D) The yield curve is more often downward sloping (as in this case) than upward sloping. Ans: B

Maturity (years) Zero-Coupon YTM 2021 5% 2022 4.5% 2023 4% 2024 3.5% 2025 3%