According to the expectations theory of the term structure of interest rates,
A) investors prefer holding short-term securities.
B) the shape of the yield curve is determined by investors' expectations of future short-term interest rates.
C) institutional investors' maturity preferences determine the shape of the yield curve.
D) investors always expect short-term interest rates to increase.
E) both a and b

Question

Quizplus · Accepted Answer

The expectations theory suggests that the yield curve reflects investors' expectations about future short-term interest rates.

According to the Expectations Theory of the Term Structure of Interest