Q802
Term structure premium, an inflation of bond and bond default premium are included in
A.
risk factors
AnswerB.
premium factors
C.
bond buying factors
D.
multi model
Answer: Option A
Solution
Answer: Option A
Solution:
Term structure premium, an inflation of bond and bond default premium are included in risk factors. Term Premium is the amount by which the yield-to-maturity of a long-term bond exceeds that of a short-term bond. Because one collects coupons on a long-term bond for a longer period of time, its yield-to-maturity will be more. The amount of a term premium depends on the interest rates of the individual bonds. Inflation-linked bonds, or ILBs, are securities designed to help protect investors from inflation. A default premium is the additional amount a borrower must pay to compensate a lender for assuming default risk. All companies or borrowers indirectly pay a default premium, through the rate at which they must repay the obligation.