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Basic Question 2 of 12
The yield on a default-free bond is composed of ______.
II. expected inflation rate
III. maturity premium
IV. liquidity premium
V. credit spread
I. risk-free interest rate
II. expected inflation rate
III. maturity premium
IV. liquidity premium
V. credit spread
User Contributed Comments 3
| User | Comment |
|---|---|
| CJPerugini | Why wouldn't you include liquidity premium? Just because a bond is default free doesn't mean it's 100% liquid. |
| ascruggs92 | Actually, it does. Think about it logically, there will always be buyers for a risk free asset, and no seller would reduce the price of a risk free asset unless the sale was forced, that would be giving away guaranteed income. Also, understand that any time risk free anything is being discussed, it is always in reference to US Treasuries, and there is no shortage of liquidity in that market. |
| houstcarr | there is major shortage of liquidity in plenty of us treasuries. this has been a major discussion in markets for the past few years. |
I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach
Learning Outcome Statements
describe macroeconomic, market, and issuer-specific factors that influence the level and volatility of yield spreads
CFA® 2025 Level I Curriculum, Volume 4, Module 14.