"Provide some of the disadvantages of the Expectation Theory of Interest rate. "

Hi all! In a class group discussion I was asked to describe the Expectation Theory of Interest rate disadvantages.
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"Drawbacks: - Faulty assumptions - Does not explain how the short-term rate is determined. Source:"
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The simplest interesting fee concepts would be the genuine targets possibility which usually considers that the expression construction of attention deal merely is determined by the particular shorter-term segments regarding identifying the charges along with interest rate of lengthier maturities. This natural anticipation idea may be the most effective of interest price theories. The idea presumes of which assure in higher maturities (such as that of five,15, or perhaps thirty year provides), correspond specifically to be able to future understood charges, and so are compounded in the yields upon reduced maturities. To put it differently, getting a twenty yr shackle comes to buying two 5 year bonds inwards succession; you will be because dependable inside a 15-season as with any all 5-yr attachment.
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