According to the , long-term interest rates are a function of expected short-term interest rates.
A)Maturity theory
B)Expectations theory
C)Market segmentation theory
D)Preferred habitat theory

Question

Quizplus · Accepted Answer

The statement refers to the Expectations theory, which asserts that the long-term interest rates are determined by the market's expectation of the future short-term rates. This theory assumes that investors are indifferent to the maturity of the securities, and they base their investment decisions on the expected returns of bonds with different maturities. Therefore, the yield curve reflects the market expectations of future rates and economic conditions.

According to the , Long-Term Interest Rates Are a Function