If investors feel that half of the time future spot rates will rise and half of the time they will decline, the liquidity preference theory

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The liquidity preference theory suggests that investors demand a premium for the added risk of holding longer-term securities, leading to a majority of upward sloping yield curves. This theory posits that longer maturities carry more risk (e.g., interest rate risk, inflation risk), so investors require higher yields for longer-term investments, resulting in an upward sloping yield curve most of the time.

If Investors Feel That Half of the Time Future Spot