Are these statements correct? Statement 1: The segmented market theory assumes t

Question

Are these statements correct?

Statement 1:      The segmented market theory assumes that bond market participants are limited to purchase maturities that match the timing of their liabilities.

Statement 2:      The preferred habitat theory assumes that bond market participants have a preferred maturity for asset purchases, but may deviate from it if they feel returns in other maturities offer sufficient compensation for leaving their preferred habitat segment.

Both statements are correct.

Both statements are not correct

Only statement 1 is correct.

Only statement 2 is correct.

Both statements are correct.

Both statements are not correct

Only statement 1 is correct.

Only statement 2 is correct.

Explanation / Answer

(Option A) Both statements are correct.

segmented market theory assume that no relation between interest rate and maturity. Investors plan according to match their liabilities or needs.

Preferred habitat theory is extension of segmented market and expected theory. Here for an extra premium with a risk involved. If user want to prefer extra return with risk

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