The Liquidity Premium Theory of the Term Structure Assumes

Multiple Choice

The liquidity premium theory of the term structure assumes:

A) that interest rates on long-term bonds respond to supply and demand conditions for those bonds.
B) investors have a preference for short-term bonds, as they have lower interest-rate risk.
C) that an average of expected short-term rates is an important component of interest rates on long-term bonds.
D) all of the given answers are correct.