Which theory that suggests that investors typically prefer more liquid, shorter-term bonds?
A) preferred habitat.
B) the yield curve.
C) liquidity preference.
D) none of the above.

Question

Quizplus · Accepted Answer

The liquidity preference theory suggests that investors typically prefer more liquid, shorter-term bonds because they are less risky and more flexible compared to longer-term bonds. This preference for liquidity is believed to contribute to the shape of the yield curve, with shorter-term interest rates generally being lower than longer-term rates to compensate for the higher demand for short-term securities.

Which Theory That Suggests That Investors Typically Prefer More Liquid