The ____ theory states that the yield curve slopes upward or downward based on the predicted future interest rates.

Question

Quizplus · Accepted Answer

The expectations theory is the theory that states that the shape of the yield curve is determined by investors' expectations of future interest rates. When investors expect rates to rise, the curve slopes upward, and when they expect rates to fall, the curve slopes downward. This theory assumes that holding securities of different maturities is equivalent and that investors are indifferent between them.

The ____ Theory States That the Yield Curve Slopes Upward