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The theory that the yield curve reflects investor expectations about future interest rates; an expectation of rising interest rates results in an upward-sloping yield curve, and an expectation of declining rates results in a downward-sloping yield curve
The theory that the yield curve reflects investor expectations about future interest rates; an expectation of rising interest rates results in an upward-sloping yield curve, and an expectation of declining rates results in a downward-sloping yield curve. This is called:
Select one:
a. Market segmentation theory
b. Expectations theory
c. Liquidity preference theory
d. Expectations theory and Liquidity preference theory
Expert Solution
Expectation theory will be advocating that investors Expectations about future interest rates will be reflected through term structure of the yield curve and expectation of rising interest rate will be reflected through upward yield curve and expectation of falling interest rate will be reflected through downward yield curve.
it is not about liquidity preference theory.
Correct answer will be option( B) Expectations theory.
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