Assume that the following relationship holds in the bond market: (1+R(0,3))-(1+R(0,1)+L1)(1+E[R(1,2)]+Lx)(1+E[R(2,3)]+L3) If investors are risk averse, which of the following is true? All the interest rates R(0,t) should be decreasing in t, i.e. shorter maturities should command higher interest rates. All the interest rates R(0,t) should be increasing in t, i.e. longer maturities should command higher interest rates. Investors only care about risk and thus the risk premiums L can be any value, either positive or negative. Olf investors are risk averse, they will not want to hold a risky bond. Investors are risk neutral and therefore risk premiums are not allowed. All the risk premiums must be zero. At least some risk premium L must be positive Risk neutral investors only care about volatility and thus the risk premiums L can be any value, either positive or negative. By no arbitrage all R(0,t) should be the same. Risk averse investors only care about returns and thus the risk premiums L can be any value, either positive or negative