Question

5) Other things equal, the longer the investment's horizon, the smaller its maturity premium will be. T/F

Answer 1

The statement is false.

This is because longer investment horizon leads to more risk because if you hold an investment for a longer period the risk is more that it will default or the interest rates will change so the maturity risk is more and more you need to be compensated in form of maturity premium.

for exaple a 5 year bond has more maturity risk than 1 year bonds.

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