Which of the following is not a primary component of the term structure of inter
ID: 2647700 • Letter: W
Question
Which of the following is not a primary component of the term structure of interest rates?Real rate of interest Default premium Inflation premium Interest rate risk premium
Which of the following is not a primary component of the term structure of interest rates?
Real rate of interest Default premium Inflation premium Interest rate risk premium
Which of the following is not a primary component of the term structure of interest rates?
Real rate of interest Default premium Inflation premium Interest rate risk premium
Real rate of interest Default premium Inflation premium Interest rate risk premium
Explanation / Answer
Answer : Interest rate risk premium
Determinants of interest rates
r = r* + IP + DRP + LP + MRP
r = required return on a debt security
r* = real risk-free rate of interest
IP = inflation premium
DRP = default risk premium
LP = liquidity premium
MRP = maturity risk premium
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