According to the pure expectations approach to term structure, investors view securities with different maturities as
A) close substitutes.
B) complements.
C) inversely related.
D) independent.

Question

Quizplus · Accepted Answer

The pure expectations approach assumes that investors view securities with different maturities as close substitutes, meaning they can be exchanged for one another without significant difference in return. This implies that the expected returns on short-term and long-term securities are linked and affect each other.

According to the Pure Expectations Approach to Term Structure, Investors