According to the expectations theory of the term structure
A)the interest rate on long-term bonds will exceed the average of short-term interest rates that people expect to occur over the life of the long-term bonds,because of their preference for short-term securities.
B)interest rates on bonds of different maturities move together over time.
C)buyers of bonds prefer short-term to long-term bonds.
D)buyers require an additional incentive to hold long-term bonds.

Question

Quizplus · Accepted Answer

The expectations theory of the term structure suggests that interest rates on bonds of different maturities move together over time, based on the expected future short-term interest rates. This theory assumes that investors are indifferent between short-term and long-term bonds and that the only difference in rates between them is due to the expected path of short-term interest rates. Therefore, choice A, C, and D are incorrect.

According to the Expectations Theory of the Term Structure