Which of the following security portfolios should offer the highest maturity premium?
A)common stocks, because they never mature
B)long-term treasury bonds, because of potential fluctuations in interest rates
C)treasury bills, because of fluctuations in inflation rates
D)The Dow, because it is the oldest and most stable index

Question

Quizplus · Accepted Answer

Long-term treasury bonds typically provide a higher maturity premium compared to other securities because of the potential fluctuations in interest rates. As interest rates rise, the value of bonds issued at lower interest rates falls, resulting in a premium for those who hold the bond until maturity. Common stocks, on the other hand, do not have a maturity date, thereby not yielding any maturity premium. Treasury bills also do not offer a maturity premium, as they are short-term investments with a maturity of less than one year. The age and stability of an index, such as the Dow, do not necessarily provide a higher maturity premium.

Which of the Following Security Portfolios Should Offer the Highest