Which of the following statements is most correct?
A) Interest rates on U.S. Treasury bonds do not contain any type of risk premia at all. This is why they are used as the nominal, risk-free rate.
B) Interest rates on U.S. Treasury securities are not truly risk free (although nearly so) because they contain a maturity risk premium and a default risk premium.
C) Interest rates on U.S. Treasury securities are not truly risk free (although nearly so) because they contain a country risk premium and an exchange rate risk premium.
D) The difference in required interest rates on U.S. Treasury securities and equivalent corporate bonds is explained almost entirely by the existence of a liquidity premium and a maturity risk premium.
E) Both statements b and c are correct.
Correct Answer:
Verified
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