Question: Define the terms inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturity risk premium (MRP). Which of these premiums is included when
Define the terms inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturity risk premium (MRP). Which of these premiums is included when determining the interest rate on
(1) Short-term U.S. Treasury securities,
(2) Long-term U.S. Treasury securities,
(3) Short-term corporate securities, and
(4) Long-term corporate securities? Explain how the premiums would vary over time and among the different securities listed.
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The inflation premium IP is a premium added to the real riskfree rate of interest to compensate for ... View full answer
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