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According to the liquidity premium theory of the term structure, a flat yield curve indicates that short-term interest rates are expected to ----decline moderately in the future. Can you explain why the short term interest rate is expected to decline? What is the relationship between the yield curve and the interest rate?
According to the liquidity premium theory of the term structure, a flat yield curve indicates that short-term interest rates are expected to ----decline moderately in the future. Can you explain why the short term interest rate is expected to decline? What is the relationship between the yield curve and the interest rate?
Insha FatimaLv10
28 Sep 2019
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The liquidity premium theory of the term structure
| A | indicates that today's long-term interest rate equals the average of short-term interest rates that people expect to occur over the life of the long-term bond. |
| Ā | B. assumes that bonds of different maturities are perfect substitutes. |
| Ā | C. suggests that markets for bonds of different maturities are completely separate because people have different preferences. |
| Ā | D. does none of the above. |
