Question

According to the unbiased expectations theory,
A .markets are segmented and buyers stay in their own segment
B. liquidity premiums are negative and time varying
C. the term structure will most often be upward sloping
D .the long-term spot rate is an average of the current and expected future short-term interest rates
E. forward rates are less than the expected future spot rates

Answer 1

Answer:

D .the long-term spot rate is an average of the current and expected future short-term interest rates

Explanation:

Unbiased Expectations Theory  -

According to this theory , it forecasts the short - term rate of interests of the future according to the current long - term rate of interests .

Which states that the investor gets the same interest amount during two consecutive one - year bond against investing in one two - year bond .

Hence , from the given statements , the correct statement regarding the unbiased expectations theory , is ( D. ) .