When calculating the nominal interest rate, which of the following premiums is added to account for the risk of time and interest rate risk?
A) Inflation premium
B) Liquidity premium
C) Default risk premium
D) Maturity risk premium
E) None of the above

Question

Quizplus · Accepted Answer

The maturity risk premium is added to the nominal interest rate to account for the risk of time and interest rate risk. It reflects the potential for an increase in interest rates over time, which would cause the value of the bond to decrease. The other premiums listed (inflation premium, liquidity premium, and default risk premium) are added to account for other risks.

When Calculating the Nominal Interest Rate, Which of the Following