According to the Liquidity Premium Theory, the Expected Yield on a Two-Year

question 36

Multiple Choice

According to the liquidity premium theory, the expected yield on a two-year security will ____ the expected yield from consecutive investments in one-year securities.

• A) equal
• B) be less than
• C) be greater than
• D) B and C are possible, depending on the size of the liquidity premium

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Definitions:

Invitation

An offer to enter or participate in an arrangement, event, or legal agreement.

Acceptance

The expression of assent to the terms of an offer in such a manner that it forms a legally binding contract.

Unilateral Contract

A unilateral contract is a legally binding agreement where one party promises to do something in return for an act of the other party, who is not legally obligated to act.

Consideration

in contract law, refers to something of value given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances.