The belief that investors require a higher return to entice them into holding long-term securities is the viewpoint of the
A) expectations hypothesis.
B) market segmentation theory.
C) liquidity premium theory.
D) market credit crunch theory.

Question

Quizplus · Accepted Answer

The belief that investors require a higher return to hold long-term securities is the core idea behind the liquidity premium theory. The expectations hypothesis states that long-term interest rates are merely a function of expected future short-term rates. The market segmentation theory posits that different investors have preferences for different maturity segments of the bond market. The market credit crunch theory suggests that fluctuations in the availability of credit, rather than investor preferences, can drive changes in long-term rates.

The Belief That Investors Require a Higher Return to Entice