If the Liquidity Premium Exists, a Flat Yield Curve Would

question 77

Multiple Choice

If the liquidity premium exists, a flat yield curve would be interpreted as the market expecting ____ in interest rates.

• A)no changes
• B)a slight decrease
• C)a slight increase
• D)a large increase

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Definitions:

Par Value

The face value of a bond or stock as stated by the issuer, often used in the context of bonds and preferred stock.

Coupon Rate

The annual percentage yield of a bond relative to its nominal value.

Current Yield

The annual income (interest or dividends) divided by the current price of the security, often used in relation to bonds to describe the percentage return based on the bond's current market price.

Coupon Bonds

Bonds that pay the holder a fixed interest rate (coupon) over the life of the bond, and then return the principal at maturity.