9. Determinants of market interest rates Aa Aa E Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: Component Characteristic This is the rate for a short-term riskless security when inflation is expected to be zero. This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. This is the rate for a riskless security that is exposed to changes in inflation. 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. This is the premium added to the equilibrium interest rate on a security that cannot be bought or sold quickly enough to prevent or minimize loss. 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. Consider the following case: James owns the common stock of TripleAZ Corp., and Victoria owns the income bonds of the same company. Whose investment is more exposed to seniority risk? James's investment Victoria's investment O