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Which of the following best describes the segmented markets theory? _______ A) It assumes that bonds...

Which of the following best describes the segmented markets theory? _______
A) It assumes that bonds with different maturities are near perfect substitutes.
B) It provides a good explanation for why yield curves are always positive.
C) It demonstrates that lenders always prefer to invest for only short periods of time.
D) It assumes that investors have different investment objectives and horizons.

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Answer #1

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The answer is (d)

Market Segmentation theory believes that in each market segment the investor has a preference in terms of duration of the bonds while investing. It further asserts that the investor who makes up the market for short term securities tend to have different habits and characteristics as compared to the investor who makes up the market of long term securities.

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