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Q1: The price risk premium reflects the amount that is required to compensate investors for the higher price risk of holding longer-term securities because: Longer-term

Q1: The price risk premium reflects the amount that is required to compensate investors for the higher price risk of holding longer-term securities because:

  1. Longer-term securities are more expensive
  2. Longer-term securities have greater convexity
  3. Longer-term securities have smaller cash flows
  4. Longer-term securities have higher duration
  5. Longer-term securities are less liquid

Q2: Other things being equal, the convexity premium:

  1. Increases with the maturity
  2. Decreases with maturity
  3. Remains constant as maturity increases
  4. Has no identifiable relationship with maturity

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