The required rate of return can be broken down further into several components such as the...

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The required rate of return can be broken down further into several components such as the inflation premium, default risk premium, liquidity risk premium, and so on. Based on your understanding of the components of required rate of return, identify the determinants with each characteristic described in the following table: Characteristic This is the rate on short-term U.S. Treasury securities, assuming there is no inflation. 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. 5, It is based on the bond's rating; the higher the rating, the lower the premium added, thus lowering 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 Consider the following case: James bought shares of a heavily traded stock listed on the New York Stock Exchange (NYSE), whereas Victoria bought stocks of a rural bank with a very small number of shareholders. Whose investment is more exposed to marketability risk? Victoria's investment O James's investment The required rate of return can be broken down further into several components such as the inflation premium, default risk premium, liquidity risk premium, and so on. Based on your understanding of the components of required rate of return, identify the determinants with each characteristic described in the following table: Characteristic This is the rate on short-term U.S. Treasury securities, assuming there is no inflation. 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. 5, It is based on the bond's rating; the higher the rating, the lower the premium added, thus lowering 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 Consider the following case: James bought shares of a heavily traded stock listed on the New York Stock Exchange (NYSE), whereas Victoria bought stocks of a rural bank with a very small number of shareholders. Whose investment is more exposed to marketability risk? Victoria's investment O James's investment