The liquidity premium theory, unbiased expectations theory and market segmentation theory are the theories to describe _____________?
Correct answer: B. term structure of interest rate
- A. term structure of segmentation
- B. term structure of interest rate
- C. term structure of premium
- D. term structure of inflation
Explanation
Liquidity preference, unbiased expectations, and market segmentation are competing explanations of the term structure of interest rates, which relates interest rates to different maturities. They do not describe inflation or merely the premium term structure.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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