Questions
Questions

Business Finance Exam 2 Practice

Single choice

Which premium compensates investors for the difficulty of trading a bond quickly without affecting its price?

Options
A.Liquidity premium
B.Inflation premium
C.Maturity risk premium
D.Default risk premium
View Explanation

View Explanation

Verified Answer
Please login to view
Step-by-Step Analysis
First, consider what each premium represents in the context of bond pricing and yields, so we can evaluate which one matches the description in the question. Option 1: Liquidity premium. This premium compensates investors for the risk that a bond may be difficult to trade quickly without causing a price concession. If a bond is not traded readil......Login to view full explanation

Log in for full answers

We've collected over 50,000 authentic exam questions and detailed explanations from around the globe. Log in now and get instant access to the answers!

Similar Questions

Part 1The table below shows current and expected future​ one-year interest​ rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.[table] Year | ​One-Year Bond Rate | Multiyear Bond Rate 1 | 2.002.00​% | 2.002.00​% 2 | 3.003.00​% | 5.005.00​% 3 | 4.004.00​% | 6.006.00​% 4 | 5.005.00​% | 9.009.00​% 5 | 8.008.00​% | 12.0012.00​% [/table]Part 2The liquidity premiums for each year are given​ as: ​(Enter your responses rounded to two decimal​ places.)[table] l Subscript 11 | equals= | enter your response here ​% l Subscript 21 | equals= | enter your response here ​% l Subscript 31 | equals= | enter your response here ​% l Subscript 41 | equals= | enter your response here ​% l Subscript 51 | equals= | enter your response here ​% [/table]

Part 1The table below shows current and expected future​ one-year interest​ rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.[table] Year | ​One-Year Bond Rate | Multiyear Bond Rate 1 | 2.002.00​% | 2.002.00​% 2 | 3.003.00​% | 4.004.00​% 3 | 4.004.00​% | 5.005.00​% 4 | 6.006.00​% | 7.007.00​% 5 | 7.007.00​% | 8.008.00​% [/table]Part 2The liquidity premiums for each year are given​ as: ​(Enter your responses rounded to two decimal​ places.)[table] l Subscript 11 | equals= | enter your response here ​% l Subscript 21 | equals= | enter your response here ​% l Subscript 31 | equals= | enter your response here ​% l Subscript 41 | equals= | enter your response here ​% l Subscript 51 | equals= | enter your response here ​% [/table]

Part 1The table below shows current and expected future​ one-year interest​ rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.[table] Year | ​One-Year Bond Rate | Multiyear Bond Rate 1 | 2.002.00​% | 2.002.00​% 2 | 3.003.00​% | 3.003.00​% 3 | 4.004.00​% | 4.004.00​% 4 | 7.007.00​% | 7.007.00​% 5 | 8.008.00​% | 10.0010.00​% [/table]Part 2The liquidity premiums for each year are given​ as: ​(Enter your responses rounded to two decimal​ places.)[table] l Subscript 11 | equals= | enter your response here ​% l Subscript 21 | equals= | enter your response here ​% l Subscript 31 | equals= | enter your response here ​% l Subscript 41 | equals= | enter your response here ​% l Subscript 51 | equals= | enter your response here ​% [/table]

Part 1The table below shows current and expected future​ one-year interest​ rates, as well as current interest rates on multiyear bonds. Use the table to calculate the liquidity premium for each multiyear bond.[table] Year | ​One-Year Bond Rate | Multiyear Bond Rate 1 | 2.002.00​% | 2.002.00​% 2 | 3.003.00​% | 5.005.00​% 3 | 5.005.00​% | 7.007.00​% 4 | 6.006.00​% | 10.0010.00​% 5 | 8.008.00​% | 13.0013.00​% [/table]Part 2The liquidity premiums for each year are given​ as: ​(Enter your responses rounded to two decimal​ places.)[table] l Subscript 11 | equals= | enter your response here ​% l Subscript 21 | equals= | enter your response here ​% l Subscript 31 | equals= | enter your response here ​% l Subscript 41 | equals= | enter your response here ​% l Subscript 51 | equals= | enter your response here ​% [/table]

More Practical Tools for Students Powered by AI Study Helper

Join us and instantly unlock extensive past papers & exclusive solutions to get a head start on your studies!