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Some characteristics of the determinants of nominal Interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: ols
Some characteristics of the determinants of nominal Interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: ols Characteristic Component This is the rate on short-term U.S. Treasury securities, assuming there is no inflation This is the rate for a riskless security that is exposed to changes in inflation This is the premium added to the riske free rate that reflects the average sustained increase in the general level of prices for goods and services expected over the security's entire It is based on the band's rating the higher the rating, the lower the premium adoed, thus lowering the interest rate 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. 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. Consider the following case: James bought shares of a heavily traded stock listed on the New York Stock Exchange (NYSE), whereas Victoria bought stocks of a rural bank with a very small number of shareholders. Whose investment is more exposed to marketability risk? James's investment Victoria's investment
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