__________ suggests that the long-term interest rate is the geometric average of the present short-term rate and the short-term rates expected to prevail over the term to maturity of the long-term security.
A)The term structure of interest rates
B)The geometric average theory
C)The expectations theory
D)The preferred habitat theory

Question

Quizplus · Accepted Answer

This definition describes the expectations theory of the term structure of interest rates, which states that long-term interest rates are determined by the market's expectation of future short-term interest rates. The theory assumes that investors are indifferent between short-term and long-term securities and that the only difference between them is the frequency of interest rate payments.

__________ Suggests That the Long-Term Interest Rate Is the Geometric