How are upward-sloping yield curves explained by the Pure Expectations Theory? There are separate markets for long-term and short-term securities, and the long-term market demands greater returns. Future interest rates are expected to rise. Investors in long-term securities demand a risk premium for tying their money up longer.

i didn't see it in élan guides. my guess is its not that important in terms of the exam but may be good to know

yeah, got no recollection of this either :(

Question Of The Week - Fixed Income (10) - CFA Level 1

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This topic has 8 replies, 8 voices, and was last updated Jan-1810:54 am by ec_test.

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- simply_complex2
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  - CFA Level 1
  26 Jan 2018 at 7:26 am
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  i didn’t see it in élan guides. my guess is its not that important in terms of the exam but may be good to know
- Pranav
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  14 Oct 2017 at 9:50 am
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  yeah, got no recollection of this either 🙁
- shannondaily
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  - Undecided
  25 Jan 2018 at 6:38 pm
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  Boo! I got it wrong. :neutral_face:
- RoyD
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  - Undecided
  26 Jan 2018 at 3:21 am
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  I swear KS notes don’t mention this one bit.
- AdaptPrep
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  - Undecided
  12 Oct 2017 at 9:22 pm
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  The three major term structure theories are summarized below from the perspective of an upward-sloping yield curve:
  1. Pure Expectations Theory – Future interest rates are expected to rise.
  2. Liquidity Preference Theory – Investors in long-term securities demand a risk premium for tying their money up longer.
  3. Market Segmentation Theory – There are separate markets for long-term and short-term securities, and the long-term market demands greater returns.
- nar_bsoa
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  13 Oct 2017 at 1:46 pm
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  Thought i had done with Fixed income…then i saw this question…:)
  can anyone let know where in CFA curriculum i can find the above details…
- jak5189
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  26 Jan 2018 at 6:56 am
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  Yea, I didn’t see this in the Fixed Income section. I am trying to search for it in Econ as I think it might be there.
- ec_test
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  - CFA Charterholder
  26 Jan 2018 at 10:54 am
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  Thanks for posting this! I had no clue. I’m glad I ran into this. It is good review.
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