The expectations theory of the term structure of interest implies that:
A)interest received on securities is in accordance with term to maturity.
B)bond investors can expect to achieve the same return over any future period,regardless of the security in which they invest.
C)there is a premium due to uncertainty about the future level of interest rates.
D)there is a risk that borrowers may default on the payment of the principal.

Question

Quizplus · Accepted Answer

The expectations theory of the term structure of interest rates suggests that the long-term interest rates are an average of current and future short-term interest rates expected by investors. Therefore, it implies that investors can expect to achieve the same returns over any future period, regardless of the security in which they invest, assuming the future short-term rates evolve as expected.

The Expectations Theory of the Term Structure of Interest Implies