The expectations theory implies that short-term yields are a function of the current interest rates and the expected future interest rates.

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The expectations theory implies that long-term yields are a function of the current interest rates and the expected future interest rates.Under this theory,an investor is indifferent between the yield on a six-month bill and a series of two consecutive three-month investments or three consecutive two-month investments.

The Expectations Theory Implies That Short-Term Yields Are a Function