Question
2. Determinants of market interest rates Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and
2. Determinants of market interest rates Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Characteristic It is calculated by adding the inflation premium to r*. This is the premium that reflects the risk associated with changes in interest rates for a long-term security. This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. This is the difference between the interest rate on a US Treasury bond and a corporate bond of the same profilethat is, the same maturity and marketability. This is the rate for a short-term riskless security when inflation is expected to be zero. Component Symbol
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