A bond market analyst states “The current term st
A bond market analyst states, “The current term structure of interest rates is upward sloping which implies the market believes short-term interest rates will rise in the future.” Which theory of the term structure of interest rates does the analystmost likely believe?
A. Pure expectations theory.
B. Liquidity preference theory.
C. Market segmentation theory.
参考解答
4j8***102
2024-11-14 23:54:55
Ans:A;A is correct because under the pure expectations theory the only reason the yield curve will be upward sloping is because market participants believe that short-term rates will rise in the future.B is not correct because under the liquidity preference theory, the yield curve may take on any of the shapes we have identified. Even if the market believes short-term interest rates willdecline in the future, adding a liquidity premium to the resulting downward sloped yield curve can result in an upward sloping yield curve.C is not correct because under the market segmentation theory, the term structure is consistent with any yield curve shape. It is supply and demand for debt securities at each maturity range that determines the yield for that maturity range.
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