Assess the following statements: I. The traditional liquidity premium theory states that long term interest rates are greater than the average of expected future interest rates. II. According to the market segmentation theory short term investors will not normally switch to intermediate or long term investments. II. The liquidity premium theory of interest rates states that the term structure must always be upward sloping.
Assess the following statements: I. The traditional liquidity premium theory states that long term interest rates are greater than the average of expected future interest rates. II. According to the market segmentation theory short term investors will not normally switch to intermediate or long term investments. II. The liquidity premium theory of interest rates states that the term structure must always be upward sloping.
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
Section: Chapter Questions
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Transcribed Image Text:Assess the following statements:
I. The traditional liquidity premium theory states that long term interest rates are greater
than the average of expected future interest rates.
II. According to the market segmentation theory short term investors will not normally
switch to intermediate or long term investments.
III. The liquidity premium theory of interest rates states that the term structure must
always be upward sloping.
IV. The liquidity premium theory of interest rates states that investors are indifferent
between different maturities if the long term spot rates are equal to the average of
current and expected future short term rates.
O Three statements are correct.
Four statements are correct.
O Only one statement is carrect.
Two statements are correct.
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