According to the market segmentation theory of the term structure, Group of answer choices a) the interest rate for bonds of one maturity is determined by the supply and demand for bonds of that maturity. b) bonds of one maturity are not substitutes for bonds of other maturities; therefore, interest rates on bonds of different maturities do not move together over time. c) investors' strong preference for short-term relative to long-term bonds explains why yield curves typically slope downward. d) only A and B of the above.

According to the market segmentation theory of the term structure, Group of answer choices a) the interest rate for bonds of one maturity is determined by the supply and demand for bonds of that maturity. b) bonds of one maturity are not substitutes for bonds of other maturities; therefore, interest rates on bonds of different maturities do not move together over time. c) investors' strong preference for short-term relative to long-term bonds explains why yield curves typically slope downward. d) only A and B of the above.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 2Q: Short-term interest rates are more volatile than long-term interest rates, so short-term bond prices...

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The yield curve varies over time based the relative riskiness of buying a single long-term bond versus purchasing multiple short-term bonds. This explanation of the yield curve is most consistent with A.the Fisher Effect theoryB.the market segmentation theoryC.the unbiased expectations theoryD.the liquidity preference theory
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Which theory of the term structure proposes that bonds of different maturities are not substitutes for one another? a. Market segmentation theory b. Expectations theory c. Separable markets theory O d. Liquidity premium theory
Price of short-term bond are less volatile than long-term bonds. But yield to maturity of long-term bonds are less volatile than short-term bonds. How do you reconcile these observations? View keyboard shortcuts
Which one of the following statements is NOT true? As interest rates increase, bond prices increase. Interest rate risk is the risk that bond prices will change as interest rates change. Interest rate changes and bond prices are inversely related. Long-term bonds have more price volatility than short-term bonds of similar risk
According to the expectations theory of the term structure, O a when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future. O b. when the yield curve is downward-sloping, short-term interest rates are expected to decline in the future. O c. buyers of bonds prefer short-term to long-term bonds. O d. all of the above. O e. only A and B of the above.
When is curve duration used? O In all of the cases given. O When the yield to maturity is not a meaningful measure. O In none of the cases given. To estimate duration for bonds with embedded put options. To estimate duration for callable bonds.
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Short-term interest rates are more volatile than long-term interest rates. Despite this, rates of return on long-term bonds are more volatile than rates of return on short-term securities. How can these two empirical observations be reconciled?
Which of the following are generally true of all bonds? Group of answer choices a) Prices and returns for long-term bonds are more volatile than those for shorter-term bonds. b)Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. c) The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in the interest rate. d) All of the above are true. e) Only A and B of the above are true.
Which one of the following statements about the term structure of interest rates is true? A) The expectations hypothesis predicts a flat yield curve if anticipated future short-term rates exceed current short-term rates. B) The liquidity premium theory contends that lenders prefer to buy securities at the ghort-term end of the curve. C) The expectations hypothesis contends that the long-term spot rate is equal to the short-term rate. D) The liquidity premium theory indicates that, all else being equal, longer maturity bonds will have lower yields.
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