According to the market segmentation theory of the term structure, a. the interest rate for bonds...
According to the market segmentation theory of the term structure,
a. the interest rate for bonds of one maturity is determined by the supply and demand for bonds of that maturity.
b. bonds of one maturity are not substitutes for bonds of other maturities; therefore, interest rates on bonds of different maturities do not move together over time.
c. investors' strong preference for short-term relative to long-term bonds explains why yield curves typically slope upward.
d. all of the above.
e. none of the above
Homework Answers
D all of the above
As per the market segmentation theory of the term structure, markets of bonds with different maturities are considered completely segmented and separate. Bonds with different maturities are unrelated to each other and their prices are determined by their individual demand and supply. The yield curve generally slopes upwards since the investors have to be compensated for long-term investment with higher yields.
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