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:

Advertising Elasticity of Demand

A measure of how responsive the quantity demanded of a good is to a change in the amount of advertising for that good.

Price Elasticity of Demand

An indicator of the sensitivity of demand for a product to variations in its price.

Advertising-Sales Ratio

The ratio of advertising expenditure to sales revenue, used as a measure of the effectiveness and intensity of advertising efforts.

Consumer Demand

The desire and ability of consumers to purchase goods and services at various prices.