It is calculated by adding the inflation premium to r$*.$This is the rate on short$-$term US Treasury securities$,$ assuming there is no inflation.$$This is the premium added as a compensation for the risk that an investor will not get paid in full.$$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 marketability and trading frequency; the less frequently the security is traded, the higher the premium added, thus increasing the interest rate.$$As interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain, this premium is added as a compensation for this uncertainty.$$