DQuestion 6 What is a maturity risk premium o A premium that

DQuestion 6 What is a maturity risk premium? o A premium that reflects interest rate risk The rate of interest that would exist on default-free U.S. Treasury securities if no inflation were expect The lffeen beween the merestrate on aUS Teaur bond anda corporate bond of equal moturis tal losses to which investors are exposed because of changing interest rates.

Solution

Option A. Maturity Risk Premium is a Premium which reflects interest rate risk.

An Investor expects higher returns on a stock which has longer maturity dates because there will be change in interest rate in the market which the investor has to bear opportunity cost These are designed to compensate investors to make them hold long period of time.