Question

A particularly attractive feature of the ________ is that it tells you what the market is predicting about future short-term interest rates by just looking at the slope of the yield curve. Question 2 options: A) liquidity premium theory B) expectations theory C) segmented markets theory D) separable markets theory

Answer 1

B) expectations theory

Step-by-step explanation:

• The expectations theory tries to predict the short terms interest rate changes that will affect the future based rates and is directly related to the current long terms interest rates and theory suggests that the investors earn the same amount of interest by investing in the two consecutive years and has one-year bound investment that oversees the one to two-year bond investment.