The Liquidity Premium Theory of the Term Structure of Interest

Multiple Choice

The liquidity premium theory of the term structure of interest rates:

A) assumes that investors will hold long-term maturity assets if there is a sufficient premium to compensate for the uncertainty of the long term.
B) assumes that long-term interest rates are an arithmetic average of short-term rates plus a liquidity premium.
C) recognises that forward rates are perfect predictors of future interest rates.
D) assumes that risk premiums increase uniformly with maturity.