Term Premium Refers to

question 8

Multiple Choice

Term premium refers to

• A)the interest rate on a long-term bond minus the average interest rate on future short-term bonds.
• B)the interest rate on a long-term bond plus the average interest rate on future short-term bonds.
• C)the average interest rate on future short-term bonds.
• D)the standard deviation of the interest rate on long-term bonds.

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Definitions:

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue.

Financing Costs

These are the expenses incurred by a company or an individual when acquiring funds to finance an investment or project, including interest payments, fees, and other charges.

Cash Flow Component

Part of the total amount of money being transferred into and out of a business, affecting its liquidity.

Discount Rate

A rate used to determine the present value of future cash flows.