1. If investors feel that half of the time future spot rates will rise and half of the time they will decline, the liquidity preference theory
(a) shows the average yield curve will be flat.
(b) does not explain the declining yield curve situation.
(c) supports the majority of yield curves will be declining.
(d) is not valid.
(e) suggests there will be a majority of upward sloping yield curves.
2. The theory that states yield curve slope is formed by the relationship of supply and demand curves for various security maturities is:
(a) liquidity preference theory.
(b) term structure theory.
(c) market segmentation theory.
(d) risk minimization theory
(e) unbiased expectations theory.