The structure of interest rates results from all the following EXCEPT: A) creating the yield curve by plotting term to maturity against the coupon rate. B) viewing each bond coupon payment as a separate zero coupon bond. C) viewing a bond’s cash flows as having maturities ranging from the next coupon payment to the final payment at maturity. D) assuming that individual discount rates do not change by the same amount. Your answer: D was incorrect. The correct answer was A) creating the yield curve by plotting term to maturity against the coupon rate. The yield curve plots term to maturity and yield to maturity. The other choices are true.

Choice A is Yield Curve which is not equal to Terms Structure of Interest Rates. That’s the answer, if that’s what you are looking for.

I don’t know about that, but think about what you would plot if someone told you to plot the coupon rate for govt bonds currently from 0 - 5 yrs out. There could be 30 year bonds issued in 1980 with > 10% coupons and 5 yr notes issued in 2005 with 4% coupons. What would you plot?

Coupon rates for gov’t issued bonds going up to 30 years in maturity. This plot would definitely be upward sloping but wouldn’t really tell much. Or am i wrong?

No the point is that a 30-yr bond with 2 yrs left to maturity and a 2-yr minted yesterday bond are the same (sorta). They can have very different coupons but the ytm ought to be similar.

I see. But isn’t the question in this case regarding Term Structure. Plotting YTM won’t give you term structure. All the other choices are associated with Term Structure.

It doesn’t say “term structure”, it says “structure”. A yield curve sounds like structure to me.

That’s exactly what i was banging my head over. This seems like either poorly worded question or deliberately misleading one.

Yep - there is no question that you are getting different views f the structure (note that you can get a spot rate curve from a yield curve and vce versa)