A yield curve constructed using Treasury securities has each of the following components embedded in the nominal interest rates ________.
A)the real rate,expected inflation and a default risk premium
B)expected inflation,a default risk premium and a maturity premium
C)the real rate,expected inflation,and a maturity premium
D)the real rate,a default risk premium and expected inflation

Question

Quizplus · Accepted Answer

Nominal interest rates on Treasury securities include the real rate (reflecting the time value of money and productivity growth), expected inflation, and a maturity premium (reflecting the additional compensation required for holding the security for a longer period of time). Default risk premium is not an embedded component of Treasury securities since they are considered risk-free.

A Yield Curve Constructed Using Treasury Securities Has Each of the Following