The Theory That States That the Yield Curve Reflects the Market's

question 48

Multiple Choice

The theory that states that the yield curve reflects the market's current expectations of future short-term rates is called the _____________.

• A) Market segmentation theory
• B) Liquidity premium theory
• C) Unbiased expectations theory
• D) Inverted forward theory

---

Definitions:

Type I Error

The incorrect rejection of a true null hypothesis, or a false positive, in statistical hypothesis testing.

P-value

A measure in hypothesis testing that indicates the probability of obtaining a result at least as extreme as the one observed, assuming the null hypothesis is true.

Null Hypothesis

A statement in inferential statistics that there is no effect or no difference, and any observed deviation from this state is due to chance.

Rejection Level

The threshold or critical value that determines whether to reject the null hypothesis in statistical hypothesis testing, often denoted by alpha.