The theory of the term structure of interest rates, which states that investors and borrowers choose securities with maturities that satisfy their forecasted cash needs, is the
A)pure expectations theory.
B)liquidity premium theory.
C)segmented markets theory.
D)liquidity habitat theory.

Question

Quizplus · Accepted Answer

The segmented markets theory of the term structure of interest rates posits that the market for bonds is segmented based on their maturity, with investors and borrowers choosing securities that match their specific investment or borrowing needs. This theory suggests that the demand and supply for bonds of different maturities are determined independently of each other, leading to interest rates for various maturities being determined separately.

The Theory of the Term Structure of Interest Rates, Which