The Segmented Markets Theory Rejects Two of the Assumptions of the Expectations

question 69

Multiple Choice

The segmented markets theory rejects two of the assumptions of the expectations theory,namely:

• A) there are a large number of financial investors who hold homogeneous expectations about future interest rates and no impediments to market rates moving to equilibrium.
• B) there are no transactions costs and investors hold homogeneous expectations.
• C) that investors are indifferent between short-term or long-term bonds and that all bonds are perfect substitutes.
• D) there is no impediment to market rates moving to equilibrium and the goal of investors is to maximise their expected rate of return.

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Definitions:

Cash Dividends

Payments made by a corporation to its shareholders as a distribution of profits in the form of cash.

Net Income

The remaining profit for a company after removing all costs and tax obligations from the overall revenue.

Insignificant Influence

A situation where an investor does not have significant control or influence over the operations and management of a company in which they hold an investment.

Stock Investments

Shares of ownership in a company or a financial asset, representing a claim on its earnings and assets.