Discuss the main theories on the term structure of interest rates, their differences and
similarities. In addition to your general discussion, make sure to address the following
questions:
– Various versions of the expectations theory address the behaviour of short-term
forward rates. Explain the common hypothesis.
– What are the main types of risks associated with investing in bonds and how do
these two risks affect the pure expectations theory?
– Explain the two biased expectations theories about the term structure of interest
rates.
