Under the Liquidity Premium Theory a Flat Yield Curve Implies

question 44

Multiple Choice

Under the Liquidity Premium Theory a flat yield curve implies:

• A) There is no risk premium for longer-term maturities
• B) Short-term interest rates are expected to remain constant
• C) Short-term interest rates are expected to decrease
• D) Long-term interest rates are higher than short-term interest rates

---

Definitions:

Variable Cost

Costs that change in proportion to the level of activity or production volume, such as materials and labor.

Fixed Costs

Costs that remain constant regardless of how much is produced or sold, including expenses like rent, salaries, and insurance.

Net Income

The amount of profit that remains after all operating expenses, taxes, and costs have been subtracted from total revenue, essentially the bottom line.

Break-Even Point

The point at which total costs and total revenue are equal, resulting in neither profit nor loss.