Liquidity premium theory suggests that:
A)there is a downward bias in the yield curve.
B)the market for some securities may be thinly traded;hence,investors require a reward for this risk.
C)there is an upward bias in the yield curve because interest rate risk decreases with term to maturity.
D)there is a premium due to uncertainty about the future level of interest rates.

Question

Quizplus · Accepted Answer

Liquidity premium theory suggests that investors require a premium for holding longer-term securities due to uncertainty about future interest rates, leading to an upward bias in the yield curve.

Liquidity Premium Theory Suggests That