Assess the following statements: I. Default risk is the risk that a security issuer will default on making its promised interest and principal payments to the buyer of a security. II. The higher the default risk, the higher the interest rate that will be demanded by the buyer of the security to compensate him or her for this default (or credit) risk exposure. III. A highly liquid asset is one that can be sold at a predictable price with low transaction costs and thus can be converted into its full market value at short notice. IV. The change in required interest rates as the maturity of a security changes is called the maturity premium (MP). Only one statement is correct. All statements are correct. Two statements are correct. Three statements are correct.
Assess the following statements: I. Default risk is the risk that a security issuer will default on making its promised interest and principal payments to the buyer of a security. II. The higher the default risk, the higher the interest rate that will be demanded by the buyer of the security to compensate him or her for this default (or credit) risk exposure. III. A highly liquid asset is one that can be sold at a predictable price with low transaction costs and thus can be converted into its full market value at short notice. IV. The change in required interest rates as the maturity of a security changes is called the maturity premium (MP). Only one statement is correct. All statements are correct. Two statements are correct. Three statements are correct.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Assess the following statements:
I. Default risk is the risk that a security issuer will default on making its promised interest
and principal payments to the buyer of a security.
II. The higher the default risk, the higher the interest rate that will be demanded by the
buyer of the security to compensate him or her for this default (or credit) risk exposure.
III. A highly liquid asset is one that can be sold at a predictable price with low transaction
costs and thus can be converted into its full market value at short notice.
IV. The change in required interest rates as the maturity of a security changes is called the
maturity premium (MP).
Only one statement is correct.
O All statements are correct.
O Two statements are correct.
Three statements are correct.
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