Which theory that suggests short and long term bonds are partial substitutes?
A) preferred habitat.
B) the yield curve.
C) substitute preference.
D) none of the above.

Question

Quizplus · Accepted Answer

The Preferred Habitat Theory suggests that investors have specific maturity preferences (habitats) for bonds but are willing to buy bonds of different maturities if the yield differential compensates them for the departure from their preferred habitat, implying that short and long term bonds are partial substitutes.

Which Theory That Suggests Short and Long Term Bonds Are