According to the liquidity premium theory of the te structure of interest rates

Question

According to the liquidity premium theory of the te structure of interest rates he ont- ear bond ate s exped to be 5% 5% d % mereach of he met hie years, and the quidity premium on a three-year bond is 3% then the interest rate on a three-year bond is Round your re se to e nearest whole number) According to the liquidity premium and preferred habitat theories of the term structure of interest rates, a flat yield curve indicates that O A. future short-term interest rates are expected to stay the same. O B. future short-term interest rates are expected to rise. O C. future short-term interest rates are expected to fall. O D. bondholders no longer prefer short-term bonds to long-term bonds. Click to select your answer(s). Save for Later

Explanation / Answer

9% because (5+5+8/3)+3=9%.remember it is average of short term rates plus liquidity premium

2 future short term exchange rates are expected to be same

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