1) Which of the following is true of risk premium?
A) T-bills have a have a higher risk premium than that of Treasury bonds.
B) The government bonds have a higher risk premium than that of corporate bonds.
C) The speculative corporate issues have a lower risk premium than that of the higher rated corporate issues.
D) The lower-rated corporate issues have a higher risk premium than that of the higher rated corporate issues.
2) Draw a graph of a typical Treasury yield curve and discuss why it usually takes that shape.
3) Explain liquidity, default risk, and maturity risk premiums.