The term structure of interest rates is related to the .
A)default risk premium
B)seniority risk premium
C)marketability risk premium
D)maturity risk premium

Question

Quizplus · Accepted Answer

The term structure of interest rates refers to the relationship between the maturity of a bond and its yield. The maturity risk premium reflects the compensation investors require for the increased risk inherent in longer-term investments. Therefore, the best choice is D, the maturity risk premium. A is incorrect because default risk premium refers to the compensation for the possibility that bondholders may not receive their expected interest or principal payments. B is incorrect because seniority risk premium is the compensation for the relative ranking of a bondholder's claim on a company's assets in the event of liquidation. C is incorrect because marketability risk premium is compensation for the risk associated with the difficulty of selling a bond quickly and easily in the secondary market.

The Term Structure of Interest Rates Is Related to the