Answered: 7. Determinants of market interest…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 6PA

See similar textbooks

Related questions

Question

Transcribed Image Text: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. It is based on the bond's marketability and trading frequency; the less frequently the security is traded, the higher the premium added, thus increasing the interest rate. 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 is the rate on short-term US Treasury securities, assuming there is no inflation. This is the difference between the interest rate on a US Treasury bond and a corporate bond of the same profile-that is, the same maturity and marketability. Component Symbol

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions