According to the liquidity preference hypothesis, which of the following statements is correct? a. If term structure of interest rate is flat, then future short-term rates are expected to keep unchanged. b. •The return on investing a two-year bond equals the return of two one-year rollover investments. C. If term structure of interest rate is upward, then future short-term rates are expected to increase. d. If term structure of interest rate is downward, then future short-term rates are expected to decrease. e. The return on investing a two-year bond is less than the return of two one-year rollover investments.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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QUESTION 5
According to the liquidity preference hypothesis, which of the following statements is correct?
a. If term structure of interest rate is flat, then future short-term rates are expected to keep unchanged.
b.
The return on investing a two-year bond equals the return of two one-year rollover investments.
C. If term structure of interest rate is upward, then future short-term rates are expected to increase.
O d. If term structure of interest rate is downward, then future short-term rates are expected to decrease.
e. The return on investing a two-year bond is less than the return of two one-year rollover investments.
Transcribed Image Text:QUESTION 5 According to the liquidity preference hypothesis, which of the following statements is correct? a. If term structure of interest rate is flat, then future short-term rates are expected to keep unchanged. b. The return on investing a two-year bond equals the return of two one-year rollover investments. C. If term structure of interest rate is upward, then future short-term rates are expected to increase. O d. If term structure of interest rate is downward, then future short-term rates are expected to decrease. e. The return on investing a two-year bond is less than the return of two one-year rollover investments.
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