According to the liquidity premium theory of the term structure of interest rates, if the one-year bond rate is expected to be 4%, 7%, and 8% over each of the next three years, and if the liquidity premitum on a three-year bond is 3%, then the interest rate on a three-year bond is % (Round your response to the nearest whole number). According to the liquidity premium and preferred habitat theories of the term structure of interest rates, a flat yield curve indicates that O A. bondholders no longer prefer short-term bonds to long-term bonds. O B. future short-term interest rates are expected to fall. O C. future short-term interest rates are expected to stay the same. O D. future short-term interest rates are expected to rise.

According to the liquidity premium theory of the term structure of interest rates, if the one-year bond rate is expected to be 4%, 7%, and 8% over each of the next three years, and if the liquidity premitum on a three-year bond is 3%, then the interest rate on a three-year bond is % (Round your response to the nearest whole number). According to the liquidity premium and preferred habitat theories of the term structure of interest rates, a flat yield curve indicates that O A. bondholders no longer prefer short-term bonds to long-term bonds. O B. future short-term interest rates are expected to fall. O C. future short-term interest rates are expected to stay the same. O D. future short-term interest rates are expected to rise.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section: Chapter Questions

Problem 12QP

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