The major determinant of the term premium is
A) expectations of the expected profitability of investment projects.
B) expectations of future monetary policy.
C) expectations of future consumption spending.
D) expectations of future government purchases.

Question

Quizplus · Accepted Answer

Expectations of future monetary policy are a major determinant of the term premium because they influence interest rates and the overall economic outlook, which in turn affects the yield curve and the compensation investors require for holding longer-term bonds over shorter-term bonds.

The Major Determinant of the Term Premium Is