Which of the following rules regarding interest rate premiums are true?
A) All bonds with maturities longer than one year must have maturity risk premiums.
B) All securities must have the real risk-free rate and an appropriate inflation premium.
C) US government securities do not have default risk or liquidity risk premiums.
D) All of the above are true.
E) None of the above is true.

Question

Quizplus · Accepted Answer

All the statements provided are accurate descriptions of interest rate premiums and their application to various securities. Maturity risk premiums are necessary for bonds with maturities longer than one year due to the increased uncertainty and potential for interest rate changes over a longer period. All securities indeed must include the real risk-free rate and an appropriate inflation premium to compensate for the time value of money and the erosion of purchasing power due to inflation. US government securities are considered free of default risk, given the government's ability to raise funds through taxation or printing money, and they are highly liquid, thus not requiring liquidity risk premiums.

Which of the Following Rules Regarding Interest Rate Premiums Are