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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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