The Segmented Markets Theory

question 77

Multiple Choice

The segmented markets theory

• A)explains upward-sloping yield curves as resulting from the demand for long-term bonds being high relative to the demand for short-term bonds.
• B)explains upward-sloping yield curves as resulting from the demand for long-term bonds being low relative to the demand for short-term bonds.
• C)explains upward-sloping yield curves as resulting from the favorable tax treatment of long-term bonds.
• D)is unable to account for upward-sloping yield curves.

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Definitions:

Risky Asset

An asset that carries a significant degree of risk of losing value, but also offers a potential for higher returns compared to safer investments.

Risk-Free Asset

An asset which is assumed to provide a guaranteed return with negligible risk of financial loss, often considered to be short-term government securities.

Capital Allocation Line

A graph that shows the risk-return trade-off of investable assets, indicating the most efficient portfolio possible given a certain level of risk.

Standard Deviation

Standard deviation quantifies the variation or spread of a set of numbers from its mean, highlighting the volatility or risk associated with a financial instrument or investment.