Question
5. Which of the following are correct? i. The liquidity premium for a 2-year government bond is higher than the liquidity premium for a 5-year
5.
Which of the following are correct? i. The liquidity premium for a 2-year government bond is higher than the liquidity premium for a 5-year government bond. ii. The liquidity premium for a 3-year government bond is lower than the liquidity premium for a 3-year corporate bond. iii. The expected return from holding an illiquid two year zero-coupon bond to maturity is higher than the expected return from buying a liquid one-year zero-coupon bond (and holding it to maturity) followed by investing in another liquid one-year zero coupon bond (and holding it to maturity). iv. The expected one-year rate in one year's time is lower under the Liquidity Premium Hypothesis than the expected one-year rate in one year's time under the Pure Expectations Hypothesis (assuming that two-year bonds are illiquid and one-year bonds are liquid). The correct answer is:
Group of answer choices
(i) & (ii) & (iii)
(i) & (ii) & (iii) & (iv)
(i) & (ii) & (iv)
(ii) & (iii) & (iv)
(ii) & (iii)
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