Component Symbol Characteristic This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. It is calculated by adding the inflation premium to r*. This is the premium added as a compensation for the risk that an investor will not get paid in full. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. 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