FIN 240 Introduction to Finance (Fall 2018) 11/27/2018 Chapter 6 Interest Rates Present values (PVs) and interest rates mov There are four factors affecting interest rates: Production opportunities; Time pret current consumption; Risk; and Inflation. Sup buy a new Porsche sports car, instead of buying Treasury Bo on T-Bonds. Which of the fundamental fa (A) Inflation (B) Risk (C) Time preference for consumption (D) Production opportunities Answer:_ Fisher's three factor model 1. e in the same direction. True or False? 2. erences for pose you decide to spend your bonus from this year to nds, because of the low expected return ctors is affecting your decision in the scenario described? 3. Suppose the pure interest rate is 3%. Inflation premium is 6% per year and risk premium is 4%, what is the nominal interest rate (r)? 4. Fisher's two factor model (A) Suppose the pure interest rate is 3%. Inflation premium is 6% per year and risk premium is 4%. What is the real interest rate (r)? (B) Suppose the pure interest rate is 3%, inflation premium is 6% per year a nd risk premium is 4% What is the risk free interest rate (r)