1. When an investor sets its required rate of return, there are three factors taken into consideration: the real risk-free rate, the inflation premium, and the risk premium. The risk premium consists of two types of risk: Business Risk Premium and Financial Risk Premium. Please define each of these components which are used to determine a firms required rate of return and explain why it is important for a company to consider each of these types of risk when setting the discount rate (aka the required rate of return).

2. What factors affect the how high or low and interest rate is other than the maturity (term) of a loan or investment and why?