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Which of the following statements regarding the relationship between interest rate and risk premium is correct? Select one: a. Other things equal, the lower the
Which of the following statements regarding the relationship between interest rate and risk premium is correct? Select one: a. Other things equal, the lower the credit rating, the higher the interest rate. b. Other things equal, the higher the risk, the higher the real risk-free rate. c. Other things equal, the lower the liquidity, the lower the interest rate. d. Other things equal, the longer the maturity, the lower the interest rate. e. Other things equal, the higher the expected inflation rate, the lower the interest rate. If you observe an upward-sloping Treasury yield curve, which of the following scenario seems to be out of place? Maturity 20 years A. Real risk-free rate 1.5% 2.0% 2.1% 2.2% 1 year 5 years 10 years 30 years 2.5% B. Inflation premium 5.2% 5.1% 5.0% 4.9% 4.8% C. Default risk premium 0.0% 0.0% 0.0% 0.0% 0.0% 0.1% 0.2% 0.3% 0.5% 0.6% D. Maturity risk premium E. Liquidity premium 0.0% 0.0% 0.0% 0.0% 0.0% Select one: a. Real risk-free rate. b. Default risk premium. c. Inflation Premium. d. Liquidity premium. e. Maturity risk premium
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