Modern term structure theory supports the contention that the term structure of interest rates will:
A)be upward sloping.
B)be downward sloping.
C)be upward sloping in the short term and relatively flat in the long term.
D)be constant over time.
E)change over time.

Question

Quizplus · Accepted Answer

Modern term structure theory suggests that the shape of the yield curve is not constant over time and can change due to changes in market expectations, economic conditions, and monetary policy. Thus, the term structure of interest rates will change over time, and there is no predetermined direction or slope that it will follow. Therefore, option E is the best choice.

Modern Term Structure Theory Supports the Contention That the Term