Asked by
Christian Hernandez
on Dec 08, 2024
Verified
Which of the following combinations will result in a sharply-increasing yield curve?
A) Increasing future expected short rates and increasing liquidity premiums
B) Decreasing future expected short rates and increasing liquidity premiums
C) Increasing future expected short rates and decreasing liquidity premiums
D) Increasing future expected short rates and constant liquidity premiums
E) Constant future expected short rates and increasing liquidity premiums
Yield Curve
A graph that shows the relationship between the interest rates and the maturity dates of debt securities issued by the same issuer.
Liquidity Premiums
Additional yield that investors require to hold securities with lower liquidity, compensating them for the higher cost and difficulty of trading such securities.
Future Expected Short Rates
The anticipated interest rates for short-term debt instruments in the future, important for forecasting and investment strategies.
- Comprehend the interpretation of yield curves and their forecast for upcoming interest rates and the economic forecast.
- Acquire a clear understanding of the principle behind liquidity premiums and how they impact the shape of yield curves.
Verified Answer
SM
Learning Objectives
- Comprehend the interpretation of yield curves and their forecast for upcoming interest rates and the economic forecast.
- Acquire a clear understanding of the principle behind liquidity premiums and how they impact the shape of yield curves.