3. Determinants of market interest rates Some characteristics of the determinants of nominal interest rates are...
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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 It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people's time preferences for consumption. This is the rate on a Treasury bill or a Treasury bond. This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. This is the difference between the interest rate on a U.S. Treasury bond and corporate bond of the same profile-that is, the same maturity and marketability. 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. 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. Component Symbol 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 It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people's time preferences for consumption. This is the rate on a Treasury bill or a Treasury bond. This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time. This is the difference between the interest rate on a U.S. Treasury bond and corporate bond of the same profile-that is, the same maturity and marketability. 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. 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. Component Symbol
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Determinants of market interest rates Characteristic Component Symbol It Changes over time depending ... View the full answer
Related Book For
Principles of Accounting
ISBN: 978-1133626985
12th edition
Authors: Belverd E. Needles, Marian Powers and Susan V. Crosson
Posted Date:
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