According to the Liquidity Premium Theory of the Term Structure

question 76

Multiple Choice

According to the liquidity premium theory of the term structure

• A)because buyers of bonds may prefer bonds of one maturity over another,interest rates on bonds of different maturities do not move together over time.
• B)the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a term premium.
• C)because of the positive term premium,the yield curve will not be observed to be downward sloping.
• D)the interest rate for each maturity bond is determined by supply and demand for that maturity bond.

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