Question

A theory states that while investors and borrowers may normally concentrate on a particular natural maturity market, conditions may cause them to change maturity markets. This theory is called the:__________

Answer 1

Preferred habitat theory.

Step-by-step explanation:

Explanation on this theory deals a lot on yield; as it tries to let us know that the said investors who's bond are put to play here always tend to show that they are willing to make purchases out of their line or circle of limit if a reasonable amount of yield/ high yield is attached or falls back with their bond when they make these transactions.

This directly implies that investors interest are always seen to be embedded on their returns and also maturity. It is seen to also affect the yield curve in many cases.