Question

g If term premiums are positive, _____. long-term investors dominate the market the spread between yields on long-term and short-term bonds is positive the yield curve signals an upcoming recession the spread between yields on long-term and short-term bonds is negative liquidity premiums are negative

Answer 1

Answer:

The spread between yields on long-term and short-term bonds is positive

Explanation:

When term premiums are positive, the yield curve is considered normal, this means that long-term bonds have a higher yield to maturity than short-term bonds, due to the higher risks associated with long-term bonds.

If long-term bonds have a higher yield to maturity (YTM) than short-term bonds, this means that the spread: the difference between the term premiums of long-term bonds and short-term bonds, will be positive.

For example, if the YTM of a 10 year bond is 8%, and the YTM of a 1 year bond is 4%, the spread of of the term premiums will:

8 - 4 = 4%, a positive spread.