Which of the following is NOT true of the expectations theory?
A)It assumes that instruments with different maturities are perfect substitutes.
B)It implies that a long-term bond rate equals the average of short-term rates covering the same investment period.
C)It implies that the yield curve will usually slope upward.
D)It implies that the shape of the yield curve depends on the expected pattern of future short-term rates.

Question

Quizplus · Accepted Answer

The expectations theory does not imply that the yield curve will usually slope upward. In fact, the shape of the yield curve depends on the expected pattern of future short-term rates, which means it can slope upward, downward or be flat.

Which of the Following Is NOT True of the Expectations