The expectations theory of the term structure asserts that

Question

Quizplus · Accepted Answer

The expectations theory of the term structure suggests that long-term interest rates are determined by the average of current and future short-term interest rates. This theory assumes that investors are indifferent between holding a series of short-term securities or a single long-term security, as long as the expected yields are equal. Therefore, the theory argues that long-term interest rates should reflect the expected future path of short-term interest rates. Choices A, B, D, and E are incorrect as they do not describe the expectations theory of the term structure.

The Expectations Theory of the Term Structure Asserts That