Consider the liquidity preference theory of the term structure of interest rates. On average, one would...

Consider the liquidity preference theory of the term structure of interest rates. On average, one would expect investors to require:

a higher yield on long-term bonds than on short-term bonds

none of these options

the same yield on both short-term and long-term bonds.

a higher yield on short term bonds than on long-term bonds

Solutions

Expert Solution

Ans a. a higher yield on long-term bonds than on short-term bonds

Consider the liquidity preference theory of the term structure of interest rates. On average, one would expect investors to require a higher yield on long-term bonds than on short-term bonds. Liquidity preference theory is a model that suggests that an investor should demand a higher interest rate or premium or securities with long term maturities that carry greater risk.

jeff jeffy answered 1 year ago

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