According to the Market Segmentation Theory of the Term Structure

question 95

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 downward.
• D) only A and B of the above.

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Definitions:

Homeostasis

the process by which living organisms regulate their internal environment to maintain a stable, constant condition, despite changes in the external environment.

Arousal

The physiological and psychological state of being awake, alert, and engaged, often as a response to stimuli.

Activation Theory

A theory suggesting that performance is best under conditions of optimal arousal, rather than too high or too low.

Theoretical

Related to or based on theory; not practical or applied, but abstract and speculative.