Examlex
How does the liquidity premium theory explain an upward-sloping yield curve during normal economic times?
Default Risk Premium
The additional yield that investors require to invest in bonds that have a risk of default, compared to risk-free bonds.
Liquidity Risk Premium
The extra yield or return that investors demand for holding a security that may not be easily sold or converted into cash without a significant loss in value.
Maturity Risk Premium
The additional yield demanded by investors as compensation for the increased risk of holding a bond as it approaches its maturity date.
Inflation Rate
The rate at which the general level of prices for goods and services is rising, and, subsequently, the purchasing power of currency is falling.
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