6. Liquidity premium theory

Which of the following is consistent with the liquidity premium theory of the yield curve? Check all that apply.

If liquidity influences the yield curve, an upward-sloping yield curve suggests that the market thinks interest rates in the future will decrease.

If liquidity influences the yield curve, a flat yield curve suggests that the market thinks interest rates in the future will remain the same.

If liquidity influences the yield curve, an upward-sloping yield curve suggests that the market thinks interest rates in the future will increase.

If liquidity influences the yield curve, the forward rate overestimates the markets expectation of the future interest rate.