This is a premium added to the real risk free rate to compensate for a decreased in purchasing power over time. - Inflation Premium - IP
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 - Maturity risk premium - MRP
This is the rate for a short-term riskless security when inflation is expected to be zero - Real Risk-Free Rate - r*
It is calculated by adding the inflation premium to r* - Nominal risk free rate - rRF
This is the premium added as a compensation for the risk that an investor will not get paid in full - Default risk premium - DRP
It is based on the bonds marketability and trading frequency; the less frequently the security is traded, the higher the premium added, thus increasing the interest rate - liquidity risk premium - LP
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