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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: This
Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic: This is the premium added to the real risk- free rate to compensate for a decrease in purchasing power over time. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people's time preferences for consumption. It is calculated by adding the inflation premium to r". It is based on the bond's rating; the higher the rating, the lower the premium added, thus lowering the interest rate. This is the premium that reflects the risk associated with changes in interest rates for a long-term security. Question 5 [Choose] [Choose] [Choose] [Choose ] [Choose ] [Choose ] [Choose] default risk premium inflation premium real risk-free rate maturity risk premium nominal risk-free rate liquidity premium > > > >
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