Which of the Following Statements Is CORRECT

question 38

Multiple Choice

Which of the following statements is CORRECT?

• A) The yield on a 3-year Treasury bond cannot exceed the yield on a 10-year Treasury bond.
• B) The real risk-free rate is higher for corporate than for Treasury bonds.
• C) Most evidence suggests that the maturity risk premium is zero.
• D) Liquidity premiums are higher for Treasury than for corporate bonds.
• E) The pure expectations theory states that the maturity risk premium for long-term Treasury bonds is zero and that differences in interest rates across different Treasury maturities are driven by expectations about future interest rates.

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Definitions:

Cash Dividends

Dividends paid in the form of cash to a company’s shareholders from its current or retained earnings.

Public Corporations

are companies whose shares are traded publicly on stock exchanges, allowing them to raise capital from public investors.

Earnings

The amount of profit that a company produces during a specific period, typically reported as net income.

Capital Gain Yield

The aspect of the total gains from an investment that derives solely from its rise in price, without accounting for dividends or interest received.