1. The real risk-free rate of return is equal to, given that the inflation premium is 2% and the nominal risk-free rate of retum is 8% a. 6%. (b.) 10% c. 16%. d. 6%. c. None of the above 2. Which of the following are the fundamental factors that affect the cost of money EXCEPT? a. Production opportunities b. Time preferences for consumption c. The Department of Treasury's illiquidity d. Risk e. Inflation 3. The premium is compensation for the fact that there will not be enough buyers and sellers for the financial asset a. inflation risk b. maturity risk (c) liquidity risk d. default risk 4. Interest rate risk refers to the risk of capital losses to which investors are exposed because of changing interest rates, while reinvestment rate risk refers to the risk bondholders face when their investments mature later than expected so that they don't have to find other financial assets to reinvest their funds. The first statement is. while the second statement is...... (a) True, false b. False, true c. True, true d. False, false 5. In the textbook, the nominal interest rate is defined as being equal to the real risk-free rate, plus an inflation premium, plus a default risk premium, plus a liquidity premium, plus a market risk premium. a. True (b) False