Under the Expectations Theory, long term rates:
A) are the summation of short term rates.
B) are the average of present and future short term rates.
C) biased toward the highest prevailing short term rate.
D) biased toward the lowest prevailing short term rate.

Question

Quizplus · Accepted Answer

Under the Expectations Theory, long-term interest rates are essentially an average of current and expected future short-term interest rates. This theory posits that the shape of the yield curve reflects market expectations for future interest rates.

Under the Expectations Theory, Long Term Rates