Which of the Following Statements Explains the Liquidity Premium Theory

question 17

Multiple Choice

Which of the following statements explains the liquidity premium theory of the term structure of interest rates?

• A) Investors will pay higher prices for longer-term securities.
• B) Investors demand a lower yield for securities that cannot be sold quickly at high prices.
• C) Investors demand a higher return on longer-term securities with greater price risk and less marketability.
• D) Investors will pay higher prices for securities with greater price risk and less marketability.

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