c.)the slope of the yield curve depends on the expected future path of short-term rates. The expectations theory suggests that a.) yield curves should be equally likely to slope downward as slope upward According to the expectations theory of term structure, the interest rate for each maturity bond is determined by supply and demand for that maturity bond Analysts look to the slope of the yield curve for clues about how future short-term interest rates will trend. According to the expectations hypothesis, an upward-sloping yield curve implies that the market is expecting future short-term interest rates to rise. D. The segmented markets theory does a better job of explaining why the yields on bonds of different The yield curve can be upward sloping at a given time, as well as becoming upward sloping over time. The upward shift in the yield curve from July 2003 to July 2004 most likely reflects increased strength in the overall economy over the period rather than an increase in inflation expectations. Hence, the yield curve slopes upward, even if future interest rates are expected to remain flat or even decline a little, and so the liquidity premium theory of the term structure of interest rates explains the generally upward sloping yield curve for bonds of different maturities. Investor takeaways When there is an upward sloping yield curve… b. In addition to the slope of the yield curve, we also are interested in changes or shifts in yield curves over time. According to the expectations theory of the term structure, when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. The Yield Curve is a graphical representation of the interest rates on debt for a range of maturities. 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