In CFA material it is mentioned Unbiased expectation theory is consistent with risk neutrality, can someone explain how? Example will be useful.

That means for all tenors, the risk premium = 0 (i.e. you earn the risk-free rate for all maturities that you invest).

So whether you invest/borrow for 1 year, 2 years, 5 years, or 10 years, the spot rate is just the risk-free rate. The theory ignores the fact that longer maturity investments are riskier (i.e. should incorporate a maturity/liquidity premium), which then leads to the local expectations theory (only short-term maturities have no risk premiums).

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Thanks for clearing the doubt.

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