The Market Segmentation Theory Proposes That

question 191

Multiple Choice

The market segmentation theory proposes that:

• A)the yield curve is upward sloping since lenders prefer shorter-term loans.
• B)the debt market is represented by a single supply/demand diagram.
• C)the debt market is represented by a series of supply/demand diagrams each representing a different term, and that these operate independently of one another.
• D)the yield curve is inverted because lenders prefer longer-term loans at lower rates.

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Definitions:

Convertible Bond

A type of bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Common Stock

A type of equity security that represents ownership in a corporation, giving holders voting rights and a share in the company's profits.

Bondholder

An individual or entity that owns bonds issued by corporations or governments and is entitled to receive interest payments and the repayment of the principal.

Individual Bonds

Debt securities issued by entities such as corporations or governments to finance projects or operations, owned by the investors purchasing them.