Question 3

Which of the following is incorrect?

a. the currencys purchasing power is reduced by a rate known as the inflation rate. Inflation makes real dollars less valuable in the future and is factored into determining the nominal interest rate.

b. Default risk premium is high is the corporate entity has a bad credit rating

c. Treasury debt is most liquid debt but still long term treasury debt still requires some liquidity risk premium

d. Corporate debt requires some some liquidity risk premium and default risk premium over the treasury bonds of the same maturity.

e. The shorter the maturity of the bond is, the smaller the maturity risk premium, when everything is equal.