The key assumption of the preferred habitat theory is that investors
A)view bonds of different maturities as perfect substitutes.
B)view bonds of different maturities as completely unsubstitutable.
C)always choose the bond with the highest expected return, regardless of maturity.
D)care about both expected returns and maturity.

Question

Quizplus · Accepted Answer

The key assumption of the preferred habitat theory is that investors care about both expected returns and maturity. This means that they may not necessarily view bonds of different maturities as perfect substitutes, but they still consider maturity as an important factor in their investment decision-making process.

The Key Assumption of the Preferred Habitat Theory Is That