Question :
31) According to the liquidity premium theory of the term : 1373683
31) According to the liquidity premium theory of the term structure, a downward sloping yield curve indicates that short-term interest rates are expected to
A) rise in the future.
B) remain unchanged in the future.
C) decline moderately in the future.
D) decline sharply in the future.
32) According to the liquidity premium theory, a yield curve that is flat means that
A) bond purchasers expect interest rates to rise in the future.
B) bond purchasers expect interest rates to stay the same.
C) bond purchasers expect interest rates to fall in the future.
D) the yield curve has nothing to do with expectations of bond purchasers.
33) If the yield curve is flat for short maturities and then slopes downward for longer maturities, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting.
A) a rise in short-term interest rates in the near future and a decline further out in the future.
B) constant short-term interest rates in the near future and a decline further out in the future.
C) a decline in short-term interest rates in the near future and a rise further out in the future.
D) a decline in short-term interest rates in the near future and an even steeper decline further out in the future.
34) If the yield curve slope is flat for short maturities and then slopes steeply upward for longer maturities, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting
A) a rise in short-term interest rates in the near future and a decline further out in the future.
B) constant short-term interest rates in the near future and further out in the future.
C) a decline in short-term interest rates in the near future and a rise further out in the future.
D) constant short-term interest rates in the near future and a decline further out in the future.
35) If the yield curve has a mild upward slope, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting
A) a rise in short-term interest rates in the near future and a decline further out in the future.
B) constant short-term interest rates in the near future and further out in the future.
C) a decline in short-term interest rates in the near future and a rise further out in the future.
D) a decline in short-term interest rates in the near future and an even steeper decline further out in the future.
36) The preferred habitat theory of the term structure is closely related to the
A) expectations theory of the term structure.
B) segmented markets theory of the term structure.
C) liquidity premium theory of the term structure.
D) the inverted yield curve theory of the term structure.
37) The expectations theory and the segmented markets theory do not explain the facts very well, but they provide the groundwork for the most widely accepted theory of the term structure of interest rates,
A) the Keynesian theory.
B) separable markets theory.
C) liquidity premium theory.
D) the asset market approach.
38) The ________ of the term structure of interest rates states that the interest rate on a long-term bond will equal the average of short-term interest rates that individuals expect to occur over the life of the long-term bond, and investors have no preference for short-term bonds relative to long-term bonds.
A) segmented markets theory
B) expectations theory
C) liquidity premium theory
D) separable markets theory
39) According to this theory of the term structure, bonds of different maturities are not substitutes for one another.
A) Segmented markets theory
B) Expectations theory
C) Liquidity premium theory
D) Separable markets theory
40) In actual practice, short-term interest rates and long-term interest rates usually move together; this is the major shortcoming of the
A) segmented markets theory.
B) expectations theory.
C) liquidity premium theory.
D) separable markets theory.
