$7.$ 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

Component

Symbol

This is the premium added to the real risk$-$free rate to compensate for a decrease in purchasing power over time.

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.

This is the premium that reflects the risk associated with changes in interest rates for a long$-$term security.

This is the premium added as a compensation for the risk that an investor will not get paid in full.

It is calculated by adding the inflation premium to r$*.$

This is the rate for a short$-$term riskless security when inflation is expected to be zero.