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Answer the following questions regarding theories of term structure: a. What is the assumption of Expectations Hypothesis Theory? b. Explain why the Liquidity Premium Theory

Answer the following questions regarding theories of term structure:

a. What is the assumption of Expectations Hypothesis Theory?

b. Explain why the Liquidity Premium Theory leads to a prediction of an upward bias in the yield curve even if the rates are expected to be a constant.

c. Address a comparative analysis between the two theories.

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