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Accounting
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Aa Aa 3. Determinants of market interest rates 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 It changes over time, depending on the expected rate of return on productive assets exchanged among market participants Real risk-free rate Inflation premium and people's time preferences for consumption Liquidity risk premium This is the rate for a riskless security that is exposed to Maturity risk premium changes in inflation. Nominal risk-free rate This is the premium added to the real risk-free rate to Default risk premium compensate for a decrease in purchasing power over time. 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. This is the premium that reflects the risk associated with changes in interest rates for a long-term security This is the premium added as a compensation for the risk that an investor will not get paid in full
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