The expectations, liquidity premium, and market segmentation theories all attempt to ____.
A) account for the differences between systematic and unsystematic risks in the securities market
B) define investors' required rates of return
C) predict the values of effective interest rates
D) explain the shape of the yield curve

Question

Quizplus · Accepted Answer

The expectations, liquidity premium, and market segmentation theories are all related to the shape of the yield curve. The yield curve reflects the relationship between interest rates and time to maturity for bonds, and understanding the factors that shape the yield curve is important for investors and issuers.

The Expectations, Liquidity Premium, and Market Segmentation Theories All Attempt