Aa Aa 3. 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: Component Symbol Characteristic This is the rate on short-term U.S. Treasury securities, assuming there is no inflation. This is the premium added to the real risk-free rate to . compensate for a decrease in purchasing power over time. This is the premium that reflects the risk associated with changes in interest rates for a long-term security. This is the rate on a Treasury bill or a Treasury bond. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. It is based on the bond's rating; the higher the rating, the lower the premium added, thus lowering the interest rate. Inflation premium Nominal risk-free rate Liquidity risk premium Real risk-free rate Maturity risk premium Default risk premium 3. Determinants of market interest rates Aa 3 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 Symbol TRF DRP MRP Characteristic This is the rate on short-term U.S. Treasury securities, assuming there is no inflation. This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. This is the premium that reflects the risk associated with changes in interest rates for a long-term security. This is the rate on a Treasury bill or a Treasury bond. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. It is based on the bond's rating; the higher the rating, the lower the premium added, thus lowering the interest rate