According to the Liquidity Premium Theory of the Term Structure

Multiple Choice

According to the liquidity premium theory of the term structure,

A) the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a liquidity premium.
B) buyers of bonds may prefer bonds of one maturity over another, yet interest rates on bonds of different maturities move together over time.
C) even with a positive liquidity premium, if future short-term interest rates are expected to fall significantly, then the yield curve will be downward-sloping.
D) all of the above.
E) only A and B of the above.