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, a flat 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, an upward-sloping yield curve suggests that the market thinks interest rates in the future will decrease. Juanita would like to invest a certain amount of money for two years and considers investing in a one-year bond that pays 4 percent and a two-year bond that pays 7 percent. Juanita is considering the following investment strategies: Strategy A: Buy a one-year bond that pays 4 percent and in year one, then buy another one-year bond that pays the forward rate in year two. Strategy B: 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 0.6 percent, Juanita will choose