Answered step by step
Verified Expert Solution
Question
1 Approved Answer
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
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 |
---|---|---|
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. | ||
This is the rate for a short-term riskless security when inflation is expected to be zero. | ||
It is based on the bonds rating; the higher the rating, the lower the premium added, thus lowering the interest rate. | ||
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 securitys entire life. | ||
This is the rate for a riskless security that is exposed to changes in inflation. | ||
This is the premium added to the equilibrium interest rate on a security that cannot be bought or sold quickly enough to prevent or minimize loss. |
Step 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