Symbol MRP Characteristic Component As interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. Because Maturity risk premium Interest rate changes are uncertain, this premium is added as a compensation for this uncertainty. This is the rate for a riskless security that is exposed to changes in infiation Real risk-free rate This is the rate for a short-term riskless security when inflation is expected to be zero. Inflation premium This is the premium added as a compensation for the risk that an investor will not get paid Nominal risk-free rate in full This is the premium added to the real risk-free rate to compensate for a decrease in Default risk premium purchasing power over time. This is the premium added to the equilibrium interest rate on a security that cannot be Liquidity risks premium bought or sold quickly enough to prevent or minimize loss. DRP