If a positive liquidity premium is included in the formula for the term structure, a downward sloping yield curve is impossible.

Name: If a positive liquidity premium is included in the formula for the term structure, a downward sloping yield curve is impossible.
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A positive liquidity premium can still result in a downward sloping yield curve if short-term interest rates are expected to decrease more significantly than the liquidity premium increases for longer maturities.

If a Positive Liquidity Premium Is Included in the Formula