Following Is Information About Three Bonds:
?
?
Although None of the Bonds Has a Liquidity Premium

question 20

Multiple Choice

Following is information about three bonds:
?
?  $\begin{array} { l l c } { \text { Issuer } } & \text { Yield } & \text { Time to Maturity } \\\hline\text { Treasury } & 2.0 \% & 6 \text { months } \\\text { Company A } & 5.0 & 5 \text { years } \\\text { Company B } & 5.3 & 8 \text { years }\end{array}$
?
Although none of the bonds has a liquidity premium, any bond with a maturity equal to one year or greater has a maturity risk premium (MRP) . Except for their terms to maturity, the characteristics of the Company A and Company B bonds are the same (including their default risk) . The average inflation rate is expected to remain constant during the next 10 years. What is the annual MRP?

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Definitions:

Incompatible

Unable to exist or work together without conflict.

Intrinsic Rewards

The personal satisfaction and pleasure derived from accomplishing a task or learning new skills, independent of external rewards.

Extrinsic Motivation

Motivation driven by external rewards, such as money or praise, rather than by the inherent enjoyment or interest in the task itself.

Intrinsic Motivation

The drive to engage in activities for the inherent satisfaction or pleasure derived from the activity itself, rather than for some external reward.