Today, your local commercial bank is offering a one-year CD with an interest rate of 3%, so
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Question:
Today, your local commercial bank is offering a one-year CD with an interest rate of 3%, so the existing one-year risk-free rate is 6%. You notice that Metallica Financial Company offers an interest rate of 7% on one-year certificates. The risk premium offered by this certificate is RP = R - Rf = 7% - 3% = 4%
I just want to know what the letters in the formula stand for.
For example:
RP=R - Rf
What do RP, R, and Rf mean? in words. I used the problem above for reference but doesn't need to be solved.
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