The theory of the term structure of interest rates, which suggests that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding, is the
A) expectations hypothesis.
B) segmentation theory.
C) liquidity premium theory.
D) market average rate theory.

Question

Quizplus · Accepted Answer

The description given matches with the expectations hypothesis. It states that long-term interest rates are determined by the market's expectation of future short-term rates over the long-term bond's life.

The Theory of the Term Structure of Interest Rates, Which