Which is most responsible for the fact that yield curves have been generally upward sloping over the past 50 years?
A)the preferred habitats modification to the expectations theory
B)market segmentation
C)the liquidity premium
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The liquidity premium theory suggests that investors require a higher rate of return for holding longer-term securities due to the increased liquidity risk. This has led to a generally upward sloping yield curve over the past 50 years, as longer-term securities have offered higher yields to compensate for this risk. The preferred habitats modification to the expectations theory and market segmentation also play a role in determining yield curve shape, but the liquidity premium theory is the most responsible for the upward sloping trend.

Which Is Most Responsible for the Fact That Yield Curves