CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

Which interest rate theory states that any long-term rate is the average of the expectations of the future short-term rates?
A. Liquidity preference
B. Expectations hypothesis
C. Market segmentation
Explanation: It suggests that the term structure of interest rates is based on investor expectations about future rates of inflation.

User Contributed Comments 1

User Comment
yanoshi The liquidity preference theory says that future rates are higher because investors need compensation for the risk of a longer holding horizon. It has nothing to do with expectations of short term rates.
You need to log in first to add your comment.