According to the expectations theory,which of the following is false?
A) It assumes that instruments with different maturities are perfect substitutes.
B) It implies that a long-term bond rate equals the average of short-term rates covering the same investment period.
C) It implies that the yield curve will usually slope upward.
D) It implies that the shape of the yield curve depends on the expected pattern of future short-term rates.

Question

Quizplus · Accepted Answer

The expectations theory does not imply that the yield curve will usually slope upward. In fact, depending on the expected pattern of future short-term rates, the yield curve can slope upward, downward or even be flat. Therefore, statement C is false.

According to the Expectations Theory,which of the Following Is False