Which of the following is an implication of the mean reversion of interest rates?
A) Interest rates cannot become negative
B) When short-term interest rates are high they tend to move down
C) The term structure of interest rates tends to be upward sloping
D) When short-term interest rates are low they tend to stay low

Question

Quizplus · Accepted Answer

Mean reversion implies that interest rates will move back towards their long-term average over time. Therefore, when short-term interest rates are high, they are likely to decrease towards the average.

Which of the Following Is an Implication of the Mean