The Liquidity Premium Theory of the Term Structure of Interest

question 90

Multiple Choice

The liquidity premium theory of the term structure of interest rates

• A)assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long-term.
• B)assumes that long-term interest rates are an arithmetic average of short-term rates plus a liquidity premium.
• C)recognizes that forward rates are perfect predictors of future interest rates.
• D)assumes that risk premiums increase uniformly with maturity.
• E)None of these.

---

Definitions:

Square Footage

A measurement of area used primarily in the United States, equal to an area one foot by one foot, commonly used to measure the size of a piece of property or a building.

Hardware Department

A segment within a store or company specializing in the sale or management of hardware items, such as computers, tools, and building materials.

Total

The sum or aggregate amount resulting from the addition of individual numbers, quantities, or items, often representing a final sum in accounting and mathematics.

Gross Sales

The total sales revenue from goods or services before any deductions for returns or discounts.