The segmented markets theory
A)explains upward-sloping yield curves as resulting from the demand for long-term bonds being high relative to the demand for short-term bonds.
B)explains upward-sloping yield curves as resulting from the demand for long-term bonds being low relative to the demand for short-term bonds.
C)explains upward-sloping yield curves as resulting from the favorable tax treatment of long-term bonds.
D)is unable to account for upward-sloping yield curves.

Question

Quizplus · Accepted Answer

The segmented markets theory suggests that different maturities of bonds are not substitutes for each other, and investors have a preference for a particular maturity. If the demand for short-term bonds is greater than the demand for long-term bonds, then the yield curve will slope upwards.

The Segmented Markets Theory