When the zero curve is downward sloping the reverse is true

Reference no: EM131235835

1. Explain carefully why liquidity preference theory is consistent with the observation that the term structure of interest rates tends to be upward-sloping more often than it is downward-sloping.

2. ‘‘When the zero curve is upward-sloping, the zero rate for a particular maturity is greater than the par yield for that maturity. When the zero curve is downward-sloping the reverse is true.'' Explain why this is so.

Reference no: EM131235835

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