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Question
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. fails to recognize that forward rates are not perfect predictors of future interest rates.
E. 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.
Answer
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