Question 5

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 good credit rating

c. Treasury debt is most liquid debt and therefore requires no liquidity risk premium.

d. Corporate debt requires some liquidity risk premium

e. The longer the maturity of the bond is, the larger the maturity risk premium.