he rate of return on which one of the following has a risk premium of 0%? Multiple Choice Long-term government bonds Long-term corporate bonds Intermediate-term government bonds U.S. Treasury bills Large-company stocks

he rate of return on which one of the following has a risk premium of 0%? Multiple Choice Long-term government bonds Long-term corporate bonds Intermediate-term government bonds U.S. Treasury bills Large-company stocks

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter7: Types And Costs Of Financial Capital

Section: Chapter Questions

Problem 15DQ

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

The rate of return on which one of the following has a risk premium of 0%?

Multiple Choice

Long-term government bonds
Long-term corporate bonds
Intermediate-term government bonds
U.S. Treasury bills
Large-company stocks

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

Step 1

Risk Premium is the return offered to the investors for inducing them to invest in securities having higher risk. It can be classified in various premiums which includes premium for inflation, credibility of issuer and term period.

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