Maturity Premiums. Investments in long-term government bonds produced a negative average return during the period 1977-1981. How should we interpret this? Did bond investors in 1977 expect to earn a negative maturity premium? What do these 5 years of bond returns tell us about the normal future maturity premium? (LO11-1

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Mccarty

Business

11 December, 10:27

Maturity Premiums. Investments in long-term government bonds produced a negative average return during the period 1977-1981. How should we interpret this? Did bond investors in 1977 expect to earn a negative maturity premium? What do these 5 years of bond returns tell us about the normal future maturity premium? (LO11-1

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Hanna Lowe · Answer 1

Maturity premium refers to the additional normal come back from putting resources into since quite a while ago run versus the momentary treasury protections.

No financial specialist would need negative development premium. In the event that speculators in 1977 hope to gain negative development premium, they would not put resources into bonds during that period. Unanticipated future occasions may be the explanation of these outcomes. For instance, loan cost and expansion around then reach to that level which was not seen from numerous years. These additions lead the enormous capital misfortune on bonds which have long development period. These occasions were practically astonishing for those financial specialists who bought those bonds in earlier years.