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) separable markets theory.
C) liquidity premium theory.
D) the asset market approach.

Question

Quizplus · Accepted Answer

The liquidity premium theory builds on the expectations theory and the segmented markets theory, by adding a risk premium that investors require to compensate for holding longer-term bonds that are less liquid than short-term bonds. This theory is the most widely accepted explanation for the term structure of interest rates.

The Expectations Theory and the Segmented Markets Theory Do Not