Which of the statements is correct about the liquidity premium theory of the term structure of

interest rates?

A. Investors and many bond issuers have preferences for different maturity bonds.

B. The yield curve reflects the markets expectation about a bonds default risk.

C. The yield curve reflects a preference by lenders for shorter maturities because of interest

rate risk associated with the long-term bonds.

D. The yield curve reflects the markets expectation of future interest rates.