Under the Liquidity Premium Theory,the Expectation That Future Short-Term Rates

question 30

Multiple Choice

Under the liquidity premium theory,the expectation that future short-term rates will be constant results in a yield curve that

• A) is flat.
• B) slopes upward.
• C) slopes downward.
• D) is flat, slopes upward, or slopes downward, depending on the size of the term premium at each maturity.

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