Demonstrate the reasons why interest rates may differ between loans of different maturity based on expectations...

Demonstrate the reasons why interest rates may differ between loans of different maturity based on expectations theory, market segmentation theory, and liquidity preference theory?

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Interest rate will be different between the loans of different maturity due to expectations theory because people are often inclined to invest into the shorter term securities because these short term securities are offering with an adequate rate of interest along with lower risk due to lower duration and these investors will be demanding a premium for the investment into the longer term securities so interest rates are different of different maturity because of expectation theory.

Market segmentation theory states that the the rates of interest for different securities will be different for different duration, because there is a segregation of the markets for them and the securities are often demanded by the various kinds of companies who have appropriate need for them, so they will be accepting a different rate of interest for different maturity of securities

liquidity preference theory will be stating that investor would be more preferring to invest into the liquid securities which are for short term and there would be a difference in the interest rate which will be offered for this shor term securities and the longer term securities due to Liquidity difference.

jeff jeffy answered 1 year ago

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