7. 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 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 security's entire life. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. This is the premium added as a compensation for the risk that an investor will not get paid in full. This is the rate on short-term US Treasury securities, assuming there is no inflation. 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 on a Treasury bill or a Treasury bond. Component Symbol

7. 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 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 security's entire life. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. This is the premium added as a compensation for the risk that an investor will not get paid in full. This is the rate on short-term US Treasury securities, assuming there is no inflation. 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 on a Treasury bill or a Treasury bond. Component Symbol

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 9MC

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