Please expalin why this statement is (True). The traditional liquidity premium theory states that long-term interest rates are greater than the average of current and expected future short-term interest rates.
Please expalin why this statement is (True). The traditional liquidity premium theory states that long-term interest rates are greater than the average of current and expected future short-term interest rates.
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
Problem 1PS
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Please expalin why this statement is (True).
The traditional liquidity premium theory states that long-term interest rates are greater than the average of current and expected future short-term interest rates.
Expert Solution
Step 1
Liquidity Premium
Liquidity premiums are additional compensation added to investors who invest in assets that cannot be easily liquidated in the market. As the investment made cannot be easily converted into cash, there is a high chance of risk associated with the investment.
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