The expectations theory and the segmented markets theory do not explain the facts very well,but they provide the groundwork for the most widely accepted theory of the term structure of interest rates
A)the Keynesian theory.
B)the separable markets theory.
C)the liquidity premium theory.
D)the asset market approach.

Question

Quizplus · Accepted Answer

The most widely accepted theory of the term structure of interest rates is the liquidity premium theory, which builds upon the expectations theory and the segmented markets theory. The liquidity premium theory explains that longer-term bonds have higher interest rates than shorter-term bonds because investors demand a premium to compensate for the greater risk and uncertainty associated with holding longer-term bonds. This theory accounts for the fact that the yield curve is often upward-sloping, contrary to what the expectations theory and segmented markets theory would predict. The Keynesian theory, separable markets theory, and asset market approach are not considered the most widely accepted theories of the term structure of interest rates.

The Expectations Theory and the Segmented Markets Theory Do Not