The combination of the maturity preference theory and the market segmentation theory is known as the _______ theory.
A) modern term structure
B) expectations
C) maturity preference
D) preferred habitat
E) market segmentation

Question

Quizplus · Accepted Answer

The combination of the maturity preference theory and the market segmentation theory is known as the preferred habitat theory. This theory suggests that investors have their preferred maturity range and will only move outside of it if the compensating yield is high enough to be worth the risk. It incorporates both the idea that investors have a preference for certain maturities (maturity preference theory) and the idea that the market is segmented based on investor preferences (market segmentation theory).

The Combination of the Maturity Preference Theory and the Market