What Is the Amount of the Risk Premium on a U.S.Treasury

question 54

Multiple Choice

What is the amount of the risk premium on a U.S.Treasury bill if the risk-free rate is 2.8 percent and the market rate of return is 8.35 percent?

• A)0.00 percent
• B)2.80 percent
• C)5.55 percent
• D)8.35 percent
• E)11.15 percent

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Definitions:

FOMC

The Federal Open Market Committee, which is the branch of the Federal Reserve responsible for overseeing the nation's open market operations and interest rates.

Government Securities

Financial instruments issued by the government to raise funds from the public, promising to pay back with interest.

Lender of Last Resort

An institution, usually a country's central bank, which offers loans to banks or financial institutions that are struggling to survive in order to prevent systemic failure.

Federal Reserve System

The central banking system of the United States, responsible for setting monetary policy, regulating banks, maintaining financial stability, and providing banking services.