The expectations theory of the yield curve assumes that:
A) holding period is irrelevant
B) holding period is relevant
C) risk premiums exist for liquidity
D) supply and demand for securities is very important in long-term and short-term yields.

Question

Quizplus · Accepted Answer

The expectations theory of the yield curve assumes that the future short-term interest rates will be equal to the current long-term interest rates, implying that the holding period is irrelevant. It suggests that the shape of the yield curve is determined solely by expectations of future rates, without considering risk premiums for liquidity or the effects of supply and demand on yields.

The Expectations Theory of the Yield Curve Assumes That