Question

Can an inverted (i.e., downward sloping) yield curve occur with the three
theories of the term structure of interest rates? (Pure expectations theory,
liquidity preference theory, and market segmentation theory.)
a. Yes.
b. All except pure expectations.
c. All except liquidity preference.
d. None of the above

Answer 1

d. None of the above.

Inverted yield curve occurs when long term curve falls in short than short term curves. Here two economic theories are tell about the inverted yield curve that are pure expectation and liquidity preference theory . The market segmentation have different perspective here it says market doesn't have any direct relationship with these debt instruments and these are two segment like that. So here None of the above option is true because other three options are wrong.

ThankYou.....