According to the Expectations Theory, a.long-term bonds are not a substitute for short-term bonds, and vice-versa....
According to the Expectations Theory,
a.long-term bonds are not a substitute for short-term bonds, and vice-versa.
b.short-term rates will always rise.
c.long-term rates will always fall.
d.long-term rates indicate where financial markets expect short-term rates to be in the future.
e.short-term rates are always lower than long-term rates.
Homework Answers
Option C.
- According to the expectations theory, long term rates indicate where financial markets expect short term rates to be in the future.
- It states that, we can determine the long term rates based on the current and future value of the short term rates.
- This hypothesis is made so that, value received by investments made in short run yield the same value in the long run.
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