The Key Assumption of the Liquidity Premium Theory Is That

question 92

Multiple Choice

The key assumption of the liquidity premium theory is that investors

• A) view bonds of different maturities as perfect substitutes.
• B) view bonds of different maturities as completely unsubstitutable.
• C) always choose the bond with the highest expected return, regardless of maturity.
• D) care about both expected returns and time to maturity.

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Definitions:

Disjunct

Used in logic to refer to an either/or proposition where two options are presented and at least one of them must be true.

Disjunction

A logical operator that results in truth if at least one of its components is true.

Contingency

An event or condition that is possible but cannot be predicted with certainty, often dependent on other events happening.

Conjunct

A conjunct is a component of a compound sentence formed by the logical connective ‘and’, contributing to the compound's overall truth value.