financial maths~~財務數學~~

Country X's investment market is dominated by Pension Schemes who invest in very long term assets to match their liabilities. By considering the market segmentation theory of the term structure of interest rates, decide and explain whether you would expect the yields for long term bonds to be higher or lower than those available in the short term.

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  • 1 decade ago
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    According to the Market Segmentation Theory (市場區隔理論), investors have specific needs in terms of maturity and so yield curve reflects intersection of demand and supply of individual maturities.

    根據市場區隔理論,利率期間結構 (term structure of interest rate) 的殖利率曲線是否向上或向下傾斜,視長短期資金市場的供需情況而定。

    Since in the Country X, the investment market is dominated by Pension Schemes who invest in very long term assets to match their liabilities. Therefore, we expect higher demand for long term bonds and accordingly higher price for those bonds. As a result, the yields for long term bonds will be lower than those available in the short term.

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