The Existence of an Upward Sloping Yield Curve Proves That

question 2

True/False

The existence of an upward sloping yield curve proves that the liquidity preference theory is correct,because an upward sloping curve necessarily implies that firms must offer a maturity risk premium in order to induce investors to lend for longer periods.

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Definitions:

Put Option

This is a financial deal that permits the carrier to optionally sell a specified volume of an underlying asset at a designated price within an agreed timeframe, without mandatory action.

Seller

An individual or entity that offers goods or services in exchange for payment or other compensation.

Specified Price

A pre-determined price point related to financial and contractual agreements.

Forward Contract

A non-standardized agreement between two parties to buy or sell an asset at a specified future time at a price agreed upon today.