According to the Liquidity Premium Theory of the Term Structure

question 35

Multiple Choice

According to the liquidity premium theory of the term structure,

• A) the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a liquidity premium.
• B) buyers of bonds may prefer bonds of one maturity over another, yet interest rates on bonds of different maturities move together over time.
• C) even with a positive liquidity premium, if future short-term interest rates are expected to fall significantly, then the yield curve will be downward-sloping.
• D) all of the above.
• E) only A and B of the above.

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A device that provides wireless internet connectivity to various devices by transmitting data over radio waves.

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