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Consider the following two statements about the term structure I. According to the liquidity premium theory, in the normal state of the economy, the longer-term
Consider the following two statements about the term structure
I. According to the liquidity premium theory, in the normal state of the economy, the longer-term interest rates lie above short-term interest rates.
II. According to the expectations theory, an upward sloping term structure means that future spot rates are expected to be below todays spot rates.
a.
Both statements are false
b.
Only statement II is correct
c.
Only statement I is correct
d.
Both statements are correct
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