Answered step by step
Verified Expert Solution
Link Copied!

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.

image text in transcribedimage text in transcribed

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 bond

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Airline Management Finance

Authors: Victor Hughes

1st Edition

1138610690, 978-1138610699

More Books

Students also viewed these Finance questions

Question

Find dy/dx if x = te, y = 2t2 +1

Answered: 1 week ago