2) Explain and define and differentiate between the real risk-free rate of interest and the nominal risk-free rate ? How are these two rates measured?

3) Define the terms inflation premium (IP), default risk premium (DRP), liquidity premium (LP), and maturity risk premium (MRP). Which of these premiums is included in determining the interest rate on:

• short-term U.S. Treasury securities,
• long-term U.S. Treasury securities,
• short-term corporate securities, and
• long-term corporate securities?

Also explain how the premiums would vary over time and among the different securities listed.

4) Explain the term structure of interest rates.

5) What is a yield curve and what information is needed to draw this curve?