Given a Choice Between 5-Year and 1-Year Instruments Most People

question 3

Multiple Choice

Given a choice between 5-year and 1-year instruments most people would choose 5-year instruments when borrowing and 1-year instruments when lending. Which of the following is a theory consistent with this observation?

• A) Expectations theory
• B) Market segmentation theory
• C) Liquidity preference theory
• D) Maturity preference theory

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Definitions:

Direct Labor Cost

The total cost of all labor directly involved in the production of a product or service.

Weighted-Average Method

An inventory costing method that calculates the cost of goods sold and ending inventory based on the weighted average of all units available for sale.