determination on interest rate
TRANSCRIPT
The rate of return than a risk-free investment offers under the conditions of inflation
i.e. zero risk. So a opportunity cost for sacrificing current consumption
The Real Risk Free Rate
The premium against risk of default on payment of interest and repayment of principal
Fails to pay contractual interest payment and repayment of principal at maturity
Default Risk Premium
The premium against lower marketability of securities
The risk arises from the difficulties of selling the security
Liquidity Risk Premium
The premium against longer maturity of the security
The potential for interest rates to change while your money is tied up in a bond until it matures
Maturity Risk Premium
