Using the pure expectations theory of term structure, a negatively sloped yield curve indicates that investors expect
A) falling short term interest rates.
B) rising short term interest rates.
C) falling long term interest rates.
D) rising long term interest rates.

Question

Quizplus · Accepted Answer

The pure expectations theory suggests that a negatively sloped yield curve indicates investors expect future short-term interest rates to fall, as longer-term securities are yielding less than shorter-term securities, reflecting anticipated lower rates.

Using the Pure Expectations Theory of Term Structure, a Negatively