A maturity risk premium at a certain point in time may be expressed by comparing the interest rates on:
A) a Treasury bill and a Treasury bond.
B) a Treasury bill and a long-term corporate bond.
C) a Treasury bill and the commercial paper rate.
D) a risky security and a comparable maturity U.S. Treasury security.

Question

Quizplus · Accepted Answer

The maturity risk premium is the additional return demanded by investors for holding longer-term securities, due to the increased risk associated with longer maturities. Comparing the interest rates on a Treasury bill (short-term, risk-free) and a Treasury bond (long-term, risk-free) directly reflects the maturity risk premium, as both securities are risk-free but differ in maturity length.

A Maturity Risk Premium at a Certain Point in Time