What is the yield spread between a nongovernment security and a comparable government security called? A....
What is the yield spread between a nongovernment security and a comparable government security called?
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A. nominal rate of interest
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B. anticipated inflation
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C. real rate of interest
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D. risk premium
Homework Answers
The correct answer is (D) risk premium this is because the government securities are non-risky assets while the non-government securities are risky in nature. Therefore, the difference between the rate of return on these securities are called risk premium.
Option (A) is wrong because nominal rate of interest is an absolute value of interest rate offered on securities.
Option (B) is wrong because we cannot calculate anticipated inflation with the government and non government securities.
Option (C) is wrong because real rate of interest is equal to nominal rate of interest minus expected inflation rate.
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What is the yield spread between a nongovernment security and a
comparable government security called?
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