According to the Market Segmentation Theory of the Term Structure

question 62

Multiple Choice

According to the market segmentation theory of the term structure,

• A) the interest rate for bonds of one maturity is determined by the supply and demand for bonds of that maturity.
• B) bonds of one maturity are not substitutes for bonds of other maturities; therefore, interest rates on bonds of different maturities do not move together over time.
• C) investors' strong preference for short-term relative to long-term bonds explains why yield curves typically slope upward.
• D) all of the above.
• E) none of the above.

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Definitions:

Malkiel's Study

An academic research work that analyzes market trends, investor behavior, and the efficiency of financial markets, particularly known for supporting the random walk hypothesis.

Subsequent-year Period

A timeframe that follows the current year, used in forecasting and planning for future financial or operational activity.

Investment Company Assets

Assets held by a company that pools together money from many investors to purchase securities such as stocks, bonds, and other financial assets.

Mutual Funds

Investment vehicles that pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities.