Under the Liquidity Premium Theory,the Shape of the Yield Curve

question 70

Multiple Choice

Under the liquidity premium theory,the shape of the yield curve depends on

• A) the relative return of investments in common stocks versus investments in corporate bonds.
• B) the size of the federal government's budget deficit.
• C) government tax treatment of long-term versus short-term bonds.
• D) the expected pattern of future short-term rates and the size of the term premium at each maturity.

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