Which of the Following Statements Is CORRECT

question 67

Multiple Choice

Which of the following statements is CORRECT?

• A) liquidity premiums are generally higher on treasury than corporate bonds.
• B) the maturity premiums embedded in the interest rates on u.s. treasury securities are due primarily to the fact that the probability of default is higher on long-term bonds than on short-term bonds.
• C) default risk premiums are generally lower on corporate than on treasury bonds.
• D) reinvestment rate risk is lower, other things held constant, on long-term than on short-term bonds.
• E) if the maturity risk premium were zero and interest rates were expected to decrease in the future, then the yield curve for u.s. treasury securities would, other things held constant, have an upward slope.

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Definitions:

Marginal Product

The additional output gained by adding one more unit of a specific input, keeping all other inputs constant.

Profitability

A measure of the ability of a company or a business sector to generate earnings compared to its expenses and other relevant costs incurred during a specific period of time.

Employment

The state of having paid work, being engaged in an occupation or job.

Marginal Productivity

The additional output that is produced by using one more unit of a given input, while keeping other inputs constant.