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The liquidity premium theory suggests that long-term interest rates are higher than short-term interest rates because:

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The liquidity premium theory suggests that long-term interest rates are higher than short-term interest rates because:

 Options:

A. investors generally prefer to invest short periods of time
B. government policy maintains this relationship
C. there is greater risk in long-term bonds
D. exchange rate fluctuations establish this relationship

 

The Correct Answer Is:

  • C. there is greater risk in long-term bonds

 

Conclusion

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