An additional expected return to compensate for anticipated inflation over the life of a debt instrument.
A) Maturity risk premium
B) Default risk premium
C) Interest rate risk
D) Inflation premium

Question

Quizplus · Accepted Answer

The additional expected return to compensate for anticipated inflation over the life of a debt instrument is called inflation premium. Therefore, option D is the correct answer. Maturity risk premium refers to the additional return demanded by investors due to uncertainty about interest rate movements. Default risk premium is the extra return demanded by investors for taking on credit risk. Interest rate risk refers to the risk of a decline in a bond's price due to an increase in interest rates.

An Additional Expected Return to Compensate for Anticipated Inflation Over