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23) According to the liquidity premium theory of the term structure A) bonds of different maturities are not substitutes. B) if yield curves are downward
23) According to the liquidity premium theory of the term structure A) bonds of different maturities are not substitutes. B) if yield curves are downward sloping, then short-term interest rates are expected to fall by so much that, even when the positive term premium is added, long-term rates fall below short-term rates C) yield curves should never slope downward. D) interest rates on bonds of different maturities do not move together over time. 24) According to the liquidity premium theory of the term structure, a flat 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. Yield to Maturity Term to Maturity 25) The U-shaped yield curve in the figure above indicates that short-term interest rates are expected to A) rise in the near-term and fall later on. B) fall sharply in the near-term and rise later on. C) fall moderately in the near-term and rise later on. D) remain unchanged in the near-term and rise later on. PART II (25) 1. If 1-year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the 3-year term premium is 1 percent, what will be the 3-year bond rate
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