Any theory of the term structure of interest rates needs to explain each of the following, except why:
A) short-term yields are more volatile than long-term yields.
B) the yields of different maturities tend to move together.
C) short-term yields are usually higher than long-term yields.
D) long-term yields are usually higher than short-term yields.

Question

Quizplus · Accepted Answer

The theory of the term structure of interest rates should explain why short-term yields are usually higher than long-term yields, why different maturities move together, and why short-term yields are more volatile than long-term yields. The question asks which one of these does not need to be explained, and the correct answer is C because it is a well-established fact in financial markets.

Any Theory of the Term Structure of Interest Rates Needs