The extra return required by investors in long-term securities to offset the risk that the securities will decrease more in price when interest rates rise is the _________ risk premium.
A) interest rate
B) default
C) term structure
D) inflation
E) liquidity

Question

Quizplus · Accepted Answer

The interest rate risk premium compensates investors for the risk associated with potential price decreases in long-term securities when interest rates rise. This is because the value of existing bonds (or similar long-term securities) typically falls as interest rates increase.

The Extra Return Required by Investors in Long-Term Securities to Offset