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Which of the following statements is correct?

a. The maturity premiums embedded in the interest rates on U.S. Treasury securities are due primarily to the fact that the probability of default is higher on long-term bonds than on short-term bonds.
b. The pure expectations theory of the term structure states that borrowers generally prefer to borrow on a long-term basis while savers generally prefer to lend on a short-term basis, and that as a result, the yield curve is normally upward sloping.
c. If the maturity risk premium were zero and interest rates were expected to decrease in the future, then the yield curve for U.S. Treasury securities would, other things held constant, have an upward slope.
d. Reinvestment rate risk is lower, other things held constant, on long-term than on short-term bonds.

 

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M928073

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