When expectations theory is combined with the liquidity theory, the yield on a security will always be equal to the yield from consecutive investments in shorter-term securities over the same investment horizon.

Question

When expectations theory is combined with the liquidity theory, the yield on a security will always be equal to the yield from consecutive investments in shorter-term securities over the same investment horizon. 
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Quizplus · Accepted Answer

Expectations theory suggests that long-term interest rates reflect expected future short-term rates, while liquidity theory adds that investors demand a premium for longer-term securities due to their higher risk and lower liquidity. Therefore, the yield on a long-term security may not always equal the yield from consecutive investments in shorter-term securities, as it could be higher due to the liquidity premium.

When Expectations Theory Is Combined with the Liquidity Theory, the Yield