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30 March, 12:08

Which of the term structure theories claims that investors require maturity premiums to compensate them for buying securities that expose them to the risks of fluctuating interest rates?

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  1. 30 March, 14:36
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    the liquidity preference theory

    Explanation:

    The theory of liquidity preference relates to the concept that indicates that an investor will accept a lower rate of interest or yield on assets with lengthy-term maturities that come with higher volatility as stakeholders favor cash or other highly liquid resources, all other considerations being equivalent.

    As per the liquidity choice principle, brief-term debt interest rate is lower as creditors do not risk liquidity with larger time periods than medium - or longer-term securities. In simple words, As per the liquidity choice principle, the brief-term debt interest rate is lower as creditors do not risk liquidity with larger time periods than medium - or larger-term securities.
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