According to the Liquidity Premium Theory,the Yield Curve Normally Has

question 23

Multiple Choice

According to the liquidity premium theory,the yield curve normally has a positive slope because

• A) short-term interest rates are expected to rise.
• B) term premiums rise as the time to maturity increases.
• C) risk premiums rise over time.
• D) long-term bonds are more liquid than short-term bonds.

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Definitions:

Equity Method

An accounting technique used to record investments in other companies, where the investment is initially recorded at cost and adjusted thereafter for the investor's share of the investee's profits or losses.

Consolidated Net Income

The total net income of a parent company and its subsidiaries after accounting for minority interests, representing the overall profitability of the entire corporate group.

Acquisition Differential

The difference between the purchase price of an acquired entity and the net of the identifiable assets acquired plus liabilities assumed.

Undervalued Inventory

A situation where the reported value of inventory is less than its actual market value, possibly affecting financial statements negatively.