According to the Liquidity Premium Theory of Interest Rates

question 58

Multiple Choice

According to the liquidity premium theory of interest rates,

• A)long-term spot rates are higher than the average of current and expected future short-term rates.
• B)investors prefer certain maturities and will not normally switch out of those maturities.
• C)investors are indifferent between different maturities if the long-term spot rates are equal to the average of current and expected future short-term rates.
• D)the term structure must always be upward sloping.
• E)long-term spot rates are totally unrelated to expectations of future short-term rates.

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