The Market Segmentation Theory of the Term Structure of Interest

question 5

Multiple Choice

The market segmentation theory of the term structure of interest rates:

• A)assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long term
• B)assumes that the yield curve reflects the market's current expectations of future short-term interest rates
• C)assumes that market rates are determined by supply and demand conditions within fairly distinct time or maturity buckets
• D)assumes that both investors and borrowers are willing to shift from one maturity sector to another to take advantage of opportunities arising from changing yields

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Definitions:

Type I Error

The mistake of rejecting the null hypothesis when it is actually true, falsely indicating a significant effect or difference.

Type II Error

A Type II error occurs when a statistical test fails to reject a false null hypothesis, mistakenly accepting a false premise.

Quality Control

The process of ensuring the standards and requirements of products or services are met through consistent measurements and testing.

P-Value

A statistical measure indicating the probability of obtaining test results at least as extreme as the ones observed during the test, assuming that the null hypothesis is true.