The reasons contributing to bonds with different maturities have different yields and the implications of each hypothesis on upward-sloping yield curve and downward-sloping yield curve. Introduction: Using Expectations Theory, one can try to predict the short-term interest rates will be based on the existing long-term rates. Liquidity Preference Theory suggests the investors to demand higher interest rates or premium rates for holdings with long-term maturities and higher risk.

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Chapter 15, Problem 1CP

Summary Introduction

To determine: The reasons contributing to bonds with different maturities have different yields and the implications of each hypothesis on upward-sloping yield curve and downward-sloping yield curve.

Introduction: Using Expectations Theory, one can try to predict the short-term interest rates will be based on the existing long-term rates.

Liquidity Preference Theory suggests the investors to demand higher interest rates or premium rates for holdings with long-term maturities and higher risk.

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