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 Component Symbol This is the rate for a riskless security that is exposed to changes in inflation. This is the premium that reflects the risk associated with changes in interest rates for a long-term security. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. This is the rate on short-term US Treasury securities, assuming there is no inflation. Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United States due to lower values of this premium. It is based on the bond’s rating; the higher the rating, the lower the premium added, thus lowering the interest rate.
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 Component Symbol This is the rate for a riskless security that is exposed to changes in inflation. This is the premium that reflects the risk associated with changes in interest rates for a long-term security. This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. This is the rate on short-term US Treasury securities, assuming there is no inflation. Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United States due to lower values of this premium. It is based on the bond’s rating; the higher the rating, the lower the premium added, thus lowering the interest rate.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 14MC
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Question
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
|
Component
|
Symbol
|
|---|---|---|
| This is the rate for a riskless security that is exposed to changes in inflation. | ||
| This is the premium that reflects the risk associated with changes in interest rates for a long-term security. | ||
| This premium is added when a security lacks marketability, because it cannot be bought and sold quickly without losing value. | ||
| This is the rate on short-term US Treasury securities, assuming there is no inflation. | ||
| Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United States due to lower values of this premium. | ||
| It is based on the bond’s rating; the higher the rating, the lower the premium added, thus lowering the interest rate. |
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