Explain liquidity, default risk, and maturity risk premiums. ...

[abern]

Explain liquidity, default risk, and maturity risk premiums.
 
  What will be an ideal response?

Question 2

Which of the following is true of benchmarking?
 
  A) It is an analysis in which a firm's ratio values are analyzed to project the fundamental values of the assets for upcoming years or business cycle.
  B) It is an analysis in which a firm's ratio values are compared with those of a key competitor or with a group of competitors that it wishes to emulate.
  C) It is an analysis in which a firm's financial performance over time is evaluated using financial ratio analysis.
  D) It is a financial statement analysis technique which combines cross-sectional and time-series analyses.

[otokexnaru]

Answer to Question 1

Liquidity problems exist in thinly traded bonds, default risk is the likelihood the corporation will default on its bond obligations, and the maturity risk reflects the fact that longer-term bonds possess greater interest rate risk and sensitivity than shorter term bonds. If any of these exists, investors will demand compensation for the risk by demanding a yield premium to own the bonds.

Answer to Question 2

B