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3. Determinants of market interest rates Aa Aa (determinants) and the symbols associated with each characteristic: Characteristic Component Symbol This is the rate for a
3. Determinants of market interest rates Aa Aa (determinants) and the symbols associated with each characteristic: Characteristic Component Symbol This is the rate for a short-term riskless security when inflation is expected to be zero. As interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain, this premium is added as a compensation for this uncertainty. This is the difference between the interest rate on a U.S. Treasury bond and a corporate bond of the same profile-that is, the same maturity and marketability. Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United States due to lower values of this premium. It is based on the bond's marketability and trading frequency; the less frequently the security is traded, the higher the premium added, thus increasing the interest rate. It is calculated by adding the inflation premium to r*
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