finance (structure of interest rates)

posted by .

Some analysts believe that the term structure of interest reates is determined by the behavior of various types of financial institutions. this theory is called the:

A. expectations hypothesis
B. segmentation theory
C. liquidity premium theory
D. theory of industry supply and demand for bonds

The structure of interest rates is also know as the yield curve, so I like the expectations theory (A)

  • finance (structure of interest rates) -

    In most environments the interest rate on bonds is high for long term bonds and lower for short term bonds. This is because in theory people are more nervous about lending money for longer periods of time because "anything might happen" in thirty years but if I loan the company the money for only one year I am more likely to get it back. Therefore I want higher interest for the long term bond. That sort of sounds like "expectations" to me, but I have no experience with this terminology.

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. finance part 2

    11. Whit a Subchapter S corporation A. corporate income is taxed as directed income to stockholders B. stockholders have the same liability as members of a partnership C. the number of stockholders is unlimited D. life of the corporation …
  2. finance

    Under normal conditions (70% probability), Financing Plan A will produce $24,000 higher return than Plan B. Under tight money conditions (30% probability), Plan A will produce $40,000 less than Plan B. What is the expected value of …
  3. finance

    The extent to which inventory financing may be used depends on marketability of pledged goods. price stability of goods. perishability of goods. all of the above The belief that investors require a higher return to entice them into …
  4. finance 3 questions

    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. ANSWER Expectations hypothesis B. Segmentation theory C. Liquidity …
  5. Financial Management

    1. Total asset turnover indicates the firm's a)liquidity. b)debt position. c)ability to use its assets to generate sales. d)profitability. 2. Some analysts believe that the term structure of interest rates is determined by the behavior …
  6. FINANCE

    4. Liquidity Premium Hypothesis Suppose we observe the following rates: 1R1 = 8 percent, 1R2 = 10 percent, and E(2r1) = 8 percent. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity …
  7. FINANCE

    5. Forecasting Interest Rates Assume the current interest rate on a one-year Treasury bond (1R1) is 5.00 percent, the current rate on a two-year Treasury bond (1R2) is 5.75 percent, and the current rate on a three-year Treasury bond …
  8. FINANCE

    7. Forecasting interest rates Assume the current interest rate on a one-year Treasury bond (1R1) is 5.50 percent, the current rate on a two-year Treasury bond (1R2) is 5.95 percent, and the current rate on a three-year Treasury bond …
  9. Need help by tonite Finance

    4. Liquidity Premium Hypothesis Suppose we observe the following rates: 1R1 = 8 percent, 1R2 = 10 percent, and E(2r1) = 8 percent. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity …
  10. Basic Finance

    Suppose we observe the following rates: 1R2= 8%, 1R2= 10%. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year interest rate expected one year from now, E(2r1)?

More Similar Questions