The risk premium
A)is slightly higher on U.S. Treasury securities than on the bonds of large corporations.
B)is not subject to federal income tax.
C)compensates savers both for default risk and for illiquidity of assets.
D)falls whenever illiquidity rises.

Question

Quizplus · Accepted Answer

The risk premium compensates savers for both default risk and for illiquidity of assets, so it is not true that it is slightly higher on U.S. Treasury securities than on the bonds of large corporations (A). It is also subject to federal income tax (B) and does not necessarily fall whenever illiquidity rises (D).

The Risk Premium