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Assume that the expected short rates are constant and, to invest in long-term bonds, investors require a positive premium that increases with maturity. Will shape

Assume that the expected short rates are constant and, to invest in long-term bonds, investors require a positive premium that increases with maturity. Will shape will the yield curve take under the Liquidity Preference Theory? Would your answer change if investors required a constant positive premium?

a.

Upward sloping, Yes

b.

Humped, Yes

c.

Humped, No

d.

Downward sloping, No

e.

Downward sloping, Yes

f.

Upward sloping, No

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