Select your language

Suggested languages for you:
Log In Start studying!
Answers without the blur. Sign up and see all textbooks for free! Illustration


Essentials Of Investments
Found in: Page 332
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Answers without the blur.

Just sign up for free and you're in.


Short Answer

Question: Under the liquidity preference theory, if inflation is expected to be falling over the next few years, long-term interest rates will be higher than short-term rates. True/false/ uncertain? Why?



See the step by step solution

Step by Step Solution

Step 1: Definition

As per the liquidity preference theory, a higher rate of interest on securities should be demanded by an investor on long term maturities.

Step 2: Explanation on liquidity preference theory

If the liquidity premium is great, long-term yields can even exceed short-term yields despite having expectations of falling short rates. Thus, the interest rates in the long-term will be higher than in the short run.

Most popular questions for Business-studies Textbooks


Want to see more solutions like these?

Sign up for free to discover our expert answers
Get Started - It’s free

Recommended explanations on Business-studies Textbooks

94% of StudySmarter users get better grades.

Sign up for free
94% of StudySmarter users get better grades.