According to the segmented markets theory of the term structure
A)bonds of one maturity are close substitutes for bonds of other maturities,therefore,interest rates on bonds of different maturities move together over time.
B)the interest rate for each maturity bond is determined by supply and demand for that maturity bond.
C)investors' strong preferences for short-term relative to long-term bonds explains why yield curves typically slope downward.
D)because of the positive term premium,the yield curve will not be observed to be downward-sloping.

Question

Quizplus · Accepted Answer

The segmented markets theory suggests that the interest rate for each maturity bond is determined by the independent supply and demand for that maturity bond, implying that the markets for different maturities are segmented and do not affect each other.

According to the Segmented Markets Theory of the Term Structure