24) According to the liquidity premium theory of the term structure bonds of dif

Question

24) According to the liquidity premium theory of the term structure bonds of different maturities are not substitutes. if yield curves are downward sloping, then short-term interest rates are expected to fall by so much that, even when the positive term premium is added, long-term rates a. b. c. d. fall below short-term rates. yield curves should never slope downward. interest rates on bonds of different maturities do not move together over time. 25) The additional incentive that the purchaser of a Treasury security requires to buy a long-term security rather than a short-term security is called the a. risk premium. b. term premium. c. tax premium. d. market premium. 26) If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the 3-year term premium is 1 percent, than the 3-year bond rate will be a. 4 percent b. 3 percent. c. 2 percent. d. 1 percent. 27) If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent, and the 5-year term premium is 1 percent, than the 5-year bond rate will be a. 2 percent. b. 3 percent. c. 4 percent. d. 5 percent. 28) According to the liquidity premium theory of the term structure, a steeply upward sloping yield curve indicates that short-term interest rates are expected to a. rise in the future b. remain unchanged in the future. c. decline moderately in the future d. decline sharply in the future. 29) According to the liquidity premium theory of the term structure, a slightly upward sloping yield curve indicates that short-term interest rates are expected to a. rise in the future b. remain unchanged in the future. c. decline moderately in the future. d. decline sharply in the future.

Explanation / Answer

24 answer is b clearly as it explains occasional occurance of inverted yield curves according to this theory

25 term premium. It depends upon maturity date

26 4+3+2whole divided by 3 plus1=4

27 similarly =5%

Can answer only 4 parts according to chegg policy. Please send other parts as separate question

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