Question

What is the largest portion of the interest rate? Your answer: Opportuity cost b Default risk...

What is the largest portion of the interest rate? Your answer: Opportuity cost b Default risk premium c Maturity risk premium d Inflation compensation

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

It shall be noted that the interest rate is the percentage of an amount of money charged for its use per some period of time. It can also be thought of as the cost of not having money for one period, or the amount paid on an investment per year. The cost of money is the opportunity cost of holding money in hands instead of investing it.

The risk premium are top-up due to additional risk involved.

Inflation compensation is a small portion of the interest rate.

Hence, the largest portion of the interest rate is a. opportunity cost

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume that the real interest rate is 2%, the default risk premium is 3%, the liquidity...
Assume that the real interest rate is 2%, the default risk premium is 3%, the liquidity premium is 1%, and the maturity risk premium is 1% per year. Additionally, the expected inflation rate is 2% next year, 5% the year after, and 3% from then on. What are the nominal interest rates for: a) (5 pts) 1-year note? b) (5 pts) 5-year bond? c) (5 pts) Does this produce an inverted yield curve? Why or why not?
Based on Table 7, what is the default risk premium? Investment Maturity Liquidity Default Risk Interest...
Based on Table 7, what is the default risk premium? Investment Maturity Liquidity Default Risk Interest Rate 1 2 High Low 3.00% 2 2 Low Low 3.72 3 7 Low Low 4.72 4 8 High Low 5.54 5 8 Low High 7.04 Table 7 A. 0.78% B. 0.82% C. 1.50% D. 0.72%
The risk-free interest rate can be expressed as a function of which of the following? Real...
The risk-free interest rate can be expressed as a function of which of the following? Real rate of interest and the inflation premium Real rate of interest, inflation premium, and the default risk premium Deflation premium, real rate of interest, and the default risk premium Default risk premium, market risk premium, and the liquidity premium
A particular security’s default risk premium is 4 percent. For all securities, the inflation risk premium...
A particular security’s default risk premium is 4 percent. For all securities, the inflation risk premium is 3.65 percent and the real risk-free rate is 2.50 percent. The security’s liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security’s equilibrium rate of return. (Round your answer to 2 decimal places.)
The real rate of interest of a risk free bond is equal to: a The nominal...
The real rate of interest of a risk free bond is equal to: a The nominal interest rate minus the premium for expected inflation b The nominal interest rate plus the risk premium c The nominal interest rate minus the risk premium d The nominal interest rate plus a plus the premium for expected inflation
6-11. Default Risk Premium A company’s 5-year bonds are yielding 7.75% per year. Treasury bonds with...
6-11. Default Risk Premium A company’s 5-year bonds are yielding 7.75% per year. Treasury bonds with the same maturity are yielding 5.2% per year, and the real-risk free rate (r*) is 2.3%. The average inflation premium is 2.5%; and the maturity risk premium is estimated to be 0.1 x (t-1) %, where t = number of years to maturity? If the liquidity premium is 1%, what is the default risk premium on the corporate bonds?
Use Excel to find the solution to the following problems... Suppose the real risk free rate...
Use Excel to find the solution to the following problems... Suppose the real risk free rate of interest is 3%. Inflation is expected to be 5% for 4 years and then 7% thereafter. The maturity risk premium is 0.1%(t), where t is the number of years until maturity. The default risk premium is 3%. The liquidity premium is 1%. What is the nominal interest rate on a 6 year bond? Assume the yield on a 6 year treasury bond is...
Match the following terms to the definition. Interest Rate Risk Reinvestment Rate Risk Default Risk Floating...
Match the following terms to the definition. Interest Rate Risk Reinvestment Rate Risk Default Risk Floating rate bond Zero Coupon Bond Consol Bond A. Risk associated with price fluctuations caused by interest rate changes B. This is the risk that a firm's cost of debt will fall and as a result reinvested coupon payments will earn less yield moving forward. C. Risk that the Borrower will not make payments on time or in full D. Coupon Payments typically follow a...
A Collateralized mortgage obligation (CMO) has: A. no prepayment risk. B. no default risk. C. no...
A Collateralized mortgage obligation (CMO) has: A. no prepayment risk. B. no default risk. C. no default, no prepayment and no interest rate risks. D. no interest rate risk. E. high degree of interest rate risk.
show all works 1. The real risk-free rate of interest is 1%. Inflation is expected to...
show all works 1. The real risk-free rate of interest is 1%. Inflation is expected to be 4% the next 2 years and 7% during the next 3 years after that. Assume that the maturity risk premium is zero. What is the yield on 3-year Treasury securities? (5 points) 2. The real risk-free rate of interest is 2.5%. Inflation is expected to be 2% the next 2 years and 4% during the next 3 years after that. Assume that the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT