Which of the four interest rate components had the smallest average annual percentage in the period from 1950-1999?
A)Maturity premium
B)Real rate
C)Inflation premium
D)Default premium

Question

Quizplus · Accepted Answer

The default premium tends to be the smallest of the four components on average, especially when considering broad market averages over a long period like 1950-1999. This is because the default premium is the extra yield that investors require to compensate for the risk of default, which is generally lower for high-quality, especially government, bonds that dominate market indices. The other components, such as the real rate, inflation premium, and maturity premium, are more fundamental and pervasive factors affecting all interest rates.

Which of the Four Interest Rate Components Had the Smallest