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 vield 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 decrease. 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, a flat yield curve suggests that the market thinks interest rates in the future will remain the same. Hubert would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 3 percent and a two-year bond that pays 7 percent. Hubert is considering the following investment strategies: Strategy A: Buy a one-year bond that pays 3 percent and in year one, then buy another one-year bond that pays the forward rate in vear two. Strategy B: Buy a two-year bond that pays 7 percent in year one and 7 percent year two. 6. Liquidity premium theory Which of the following is consistent with the liquidity premium theory of the yield curve? Check all that apply. If flquidity infloences the vield curve, an upward-soping vield curve suggests that the market thinks interest rates in the fiture will decrease. Q If liquidity influences the yield curve, a fat yield curve suggests that the market thinks interest rates in the future will decrease. If liquidity influences the vield curve, an upward-aloping yeld eurve suggosts that the market thinks interest rates in the future wilf increase. If liquidity influences the vield curve, a flat vield curve suggests that the market thinks interest rates in the future will remain the same. Hubert would hke to invest a certain amount of money for two vean and considers investing in a one-year bond that pays 3 percent and a two-year bond that parys 7 percent. Hubert is considering the following investment strategies: Strategy At Buy a one-year bond that pays 3 percent and in year one, then buy another one-year bond that pays the forward rate in year two. Strategy 8: Buy a two-year bond that pays 7 percent in year one and 7 percent year two. If the one-year bond purchased in year two pays 7 percent, and the liquidity premium on a two-year bond is 0.7 percent, Hubert will choose Which of the following deccibes conditions under which Hubert would be indifferent between Strategy A and Strategy B? The rate an the che-year bond purchased in vear two is 10.476 percent. The rate en the ent year bond purchased in yoar two ls 10.790 percent. The rate en the ene-yenr bend purchased in year two is 11.209 percent. The rate on the one-year bond purchased in year two is 9.952 percent