What does a yield curve map?

• A. Yield curve maps the relationship between the maturity of fixed income and the interest rate required from creditors
• B. Yield curve maps the relationship between stock prices and time
• C. Yield curve maps the relationship between currency exchange rates and time
• D. Yield curve maps the relationship between inflation and unemployment

Answer: (A)

The yield curve maps the relationship between how long you lend money (maturity) and the return investors require (yield). It is typically drawn for bonds with the same credit quality, plotting yield on the vertical axis against time to maturity on the horizontal axis. This shows how yields vary with longer versus shorter maturities, reflecting expectations for future interest rates, the term premium, and liquidity. The shape of the curve—upward-sloping, flat, or inverted—gives clues about economic expectations and monetary policy: a normal curve suggests higher yields for longer maturities, a flat or inverted curve can signal slower growth or potential easing. This concept is distinct from stock price charts, currency exchange charts, or the inflation-unemployment relationship.