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

Question

Quizplus · Accepted Answer

The pure expectations theory of term structure suggests that long-term interest rates reflect a market consensus view of the future course of short-term interest rates. If the yield curve is sloping upwards, it suggests that investors expect short-term interest rates to rise in the future.

Using the Pure Expectations Theory of Term Structure, a Positively