Question $27$

$2\mathrm{.}5$ pts

According to the liquidity premium theory of interest rates,

Tong$-$term spot rates are higher than the average of current and expected future short$-$term rates.

investors prefer certain maturities and will not normally switch out of those maturities.

investors are indifferent between different maturities if the long$-$term spot rates are equal to the average of current and expected future short$-$term rates.

the term structure must always be upward sloping.

long$-$term spot rates are totally unrelated to expectations of future short$-$term rates.