According to the Liquidity Premium Theory of the Term Structure

question 23

Multiple Choice

According to the liquidity premium theory of the term structure

• A)bonds of different maturities are not substitutes.
• B)if yield curves are downward sloping,then short-term interest rates are expected to fall by so much that,even when the positive term premium is added,long-term rates fall below short-term rates.
• C)yield curves should never slope downward.
• D)interest rates on bonds of different maturities do not move together over time.

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