If the liquidity premium theory was correct,yield curves would be upward-sloping.

Question

Quizplus · Accepted Answer

The liquidity premium theory states that investors require a higher yield or return for investing in longer-term bonds due to the increased risk and uncertainty associated with holding those bonds for a longer period of time. This results in an upward-sloping yield curve where longer-term bonds have higher yields than shorter-term bonds. Therefore, if the liquidity premium theory is correct, yield curves would be upward-sloping.

If the Liquidity Premium Theory Was Correct,yield Curves Would Be