Market Segmentation Theory Explains the Typical Upward Sloping Shape of Yield

question 32

Multiple Choice

Market segmentation theory explains the typical upward sloping shape of yield curves as a function of

• A) normally greater demand for long-term bonds than for short-term notes.
• B) normally greater demand for short term notes than for long-term bonds.
• C) expectations that inflation will be higher in the future than it is now.
• D) the greater liquidity of short-term notes as compared to long-term bonds.

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Definitions:

Depreciation Expense

The systematic allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, obsolescence, or decline in value.

Amortization Expense

The process of allocating the cost of an intangible asset over its useful life for accounting and tax purposes.

Retained Earnings

The portion of net income that is retained by the company rather than distributed to its shareholders as dividends, accumulated over the company’s life.

Beginning Period

This refers to the starting point or the first date of a financial reporting period.