Question

g Segmented Markets Theory of the Yield Curve A. Notes or bonds of different maturities are not substitutes for each other B. Notes or bonds of different maturities are substitutes for each other C. Notes or bonds of different maturities are inversions of each other D. Explains why the yield curve is normally downward sloping

Answer 1

A

Step-by-step explanation:

The segmented Markets Theory of the Yield Curve is a traditional theory explaining the term structure of interest rates

According to the theory, the yield curve is divided into different maturities and investors determine the yield curve by their demand and supply for funds of different maturities.

Each maturity is viewed as a segmented market in which the yield is determined independently from the yields of other maturities

The theory assumes that investors are unwilling or unable to invest in other securities than that with their preferred maturity. As a result, the yield of securities in a maturity is determined only by the demand and supply of funds in that maturity. It also implies that Notes or bonds of different maturities are not substitutes for each other