Answered step by step
Verified Expert Solution
Question
1 Approved Answer
I posted both component and symbol for this question. Thanks alot ! Some characteristics of the determinants of nominal interest rates are listed as follows.
I posted both component and symbol for this question. Thanks alot !
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 risk-free rate that reflects the average sustained increase in the general level of prices for goods and services expected over the security's entire life. Inflation premium Default risk premium 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. Maturity risk premium Real risk-free rate This is the premium that reflects the risk associated with changes in interest rates for a long-term security. Nominal risk-free rate Liquidity risk premium This is the rate for a short-term riskless security when inflation is expected to be zero. This is the rate on a Treasury bill or a Treasury bond. Grade It Now Save & Continue Continud without aina Characteristic Component Symbol This is the premium added to the risk-free rate that reflects the average sustained increase in the general level of prices for goods and services expected over the security's entire life. DRP r* This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. LP It is based on the bond's rating; the higher the rating, the lower the premium added, thus lowering the interest rate. MRP IP This is the premium that reflects the risk associated with changes in interest rates for a long-term security. This is the rate for a short-term riskless security when inflation is expected to be zero. TRF This is the rate on a Treasury bill or a Treasury bondStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started