The ________ theory is the most widely accepted theory of the term structure of interest rates because it explains the major empirical facts about the term structure so well.
A) liquidity premium
B) market segmentation
C) expectations
D) none of the above

Question

Quizplus · Accepted Answer

The liquidity premium theory is the most widely accepted because it combines the expectations theory with a premium for holding longer-term bonds, explaining the upward slope of yield curves and other empirical observations.

The ________ Theory Is the Most Widely Accepted Theory of the Term