The ____ theory of the yield curve holds that required returns on long-term securities tend to be greater the longer the time to maturity.
A) MacGuffin
B) market segmentation
C) expectations
D) liquidity premium

Question

Quizplus · Accepted Answer

The liquidity premium theory argues that the yield curve is upward sloping because long-term bonds are riskier and less liquid than short-term bonds. Investors require a higher rate of return to hold long-term bonds, compensating them for the potential risks and illiquidity.

The ____ Theory of the Yield Curve Holds That Required