The Market Segmentation Theory Holds That

question 53

Multiple Choice

The market segmentation theory holds that

• A) an increase in demand for long-term borrowings leads to an inverted yield curve.
• B) expectations about the future level of interest rates is the major determinant of the shape of the yield curve.
• C) the yield curve reflects the maturity preferences of financial institutions and investors.
• D) the shape of the yield curve is always downsloping.

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Definitions:

Higher Returns

Earning more income on an investment relative to its cost, indicative of successful investments or strategies.

Required Rate

The lowest acceptable return on an investment, determined by the investor's risk tolerance and alternative investment options.

Standard Deviation

A statistical measure of the dispersion or variability in a dataset, often used in finance to quantify the risk of investment.

Very Risky Stocks

Shares of companies with a high level of volatility and uncertainty, often associated with the potential for both high returns and significant losses.