Which fact about the term structure is the Expectations Theory unable to explain?
A)Why interest rates on bonds with different terms to maturity tend to move together over time.
B)Why yields on short-term bonds are more volatile than yields on long-term bonds.
C)Why longer-term yields tend to be higher than shorter-term yields.
D)Why long-term bond yields are influenced by expected future short-term bond yields.

Question

Quizplus · Accepted Answer

The Expectations Theory cannot explain why longer-term yields tend to be higher than shorter-term yields, as it assumes that the yield curve reflects only expectations of future short-term rates and does not account for risk premiums or other factors that might cause long-term rates to be higher.

Which Fact About the Term Structure Is the Expectations Theory