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According to this theory of the term structure, bonds of different maturities are not
substitutes for one another.
A) Segmented markets theory
B) Expectations theory
C) Liquidity premium theory
D) Separable markets theory
Answer: A
Diff: 1 Type: MC Page Ref: 123 - 124
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
In actual practice, short-term interest rates and long-term interest rates usually move
together; this is the major shortcoming of the ____.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
Answer: A
Diff: 2 Type: MC Page Ref: 123 - 124
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
A key assumption in the segmented markets theory is that bonds of different maturities
____.
A) are not substitutes at all
B) are perfect substitutes
C) are substitutes only if the investor is given a premium incentive
D) are substitutes but not perfect substitutes
Answer: A
Diff: 2 Type: MC Page Ref: 123 - 124
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related
The segmented markets theory can explain ____.
A) why yield curves usually tend to slope upward
B) why interest rates on bonds of different maturities tend to move together
C) why yield curves tend to slope upward when short-term interest rates are low and to be
inverted when short-term interest rates are high
D) why yield curves have been used to forecast business cycles
Answer: A
Diff: 2 Type: MC Page Ref: 124
Skill: Recall
Objective List: 6.2 Explain how interest rates on bonds with different maturities are related