Some analysts believe that the term structure of interest rates is determined by the behavior of various types of financial institutions. This theory is called the
A) expectations hypothesis.
B) market segmentation theory.
C) liquidity premium theory.
D) theory of industry supply and demand for bonds.

Question

Quizplus · Accepted Answer

The theory that suggests the term structure of interest rates is determined by the behavior of various types of financial institutions is the market segmentation theory. This theory proposes that different investors have unique preferences for specific maturities of bonds, leading yields to differ for each maturity, regardless of the expectancy of future interest rates.

Some Analysts Believe That the Term Structure of Interest Rates