Maturity risk premium is the extra return an investor demands for bearing the risk of longer maturity financial instruments. This risk includes default risk, interest rate risk, and reinvestment risk. There is a close connection between maturity risk premium and interest rate risk, as the premium helps offset the risk of interest rates rising above the set rate for longer term securities. Maturity risk premium can be calculated by taking the yield on 10-year Treasury bills and subtracting the yield on 1-year Treasury bills.

1. By:-
eFinanceManagement.com
https://efinancemanagement.com/investment-decisions/maturity-risk-premium-meaning-
need-and-calculation
Maturity Risk Premium

2. 1. Introduction
2. Need
3. Maturity Risk Premium & Interest Rate Risk
4. How to calculate?
5. Reference
Content

3. Maturity Risk Premium is basically the extra return that an investor demands or gets for bearing the maturity risk. We can
say, longer the maturity of a financial instrument, the more is the maturity risk premium it offers.
Introduction

4. The need of maturity risk premium arises due to following risk:
1. Default risk
2. Interest rate risk
3. Reinvestment risk
Need

5. There is a very close connection between the concept of maturity risk premium and interest rate risk. This risk of the
interest rate rising more than the set rate is the interest rate risk. The maturity risk premium helps to offset this risk by
raising the interest rates on the securities with longer maturity.
Maturity Risk Premium & Interest Rate Risk

6. The formula for calculating maturity risk premium is as follows:
Maturity Risk Premium = 10 Year Treasury bill less 1 Year Treasury bill yield
How to Calculate?

7. Reference
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