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Basic Question 8 of 10
Which statement is TRUE regarding the liquidity preference theory?
II. The liquidity premium suggested by the liquidity preference theory does not apply to heavily traded (very liquid) bonds.
I. Liquidity preference theory always predicts an upward-sloping yield curve.
II. The liquidity premium suggested by the liquidity preference theory does not apply to heavily traded (very liquid) bonds.
User Contributed Comments 1
| User | Comment |
|---|---|
| alejandroc | Weirdly enough, the liquidity pref. theory does not include a liquidity premium per se. Rather, it incorporates the interest rate risk related to changes in the yield curve. |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
explain traditional theories of the term structure of interest rates and describe the implications of each theory for forward rates and the shape of the yield curve;
CFA® 2025 Level II Curriculum, Volume 4, Module 26.