| What is the Real Risk-Free Rate? | It changes over time, depending on the expected rate of return on productive assets exchanged among market participants and people’s time preferences for consumption. |
| What is the Liquidity Risk Premium? | This is the premium added as a compensation for the risk that an investor will not get paid in full. |
| What is Liquidity Risk Premium? | It is based on the bond’s marketability and trading frequency; the less frequently the security is traded, the higher the premium added, thus increasing the interest rate. |
| What is Nominal Risk-Free Rate? | It is calculated by adding the inflation premium to r* |
| What is the Inflation Premium? | Over the past several years, Germany, Japan, and Switzerland have had lower interest rates than the United Sates due to lower values of this premium. |
| What is the Maturity Risk Premium? | As interest rates rise, bond prices fall. Because interest rate changes are uncertain, the premium is added as a compensation for this uncertainty. |
| What is the order of Treasury scores? | AAA, AA, A, BBB |
| If the treasury yield curve is downward sloping… | Then inflation is expected to decrease and yield curves of highly liquid assets will be lower than yield curves of relatively liquid assets. Yield curve for an AA-rated corporate bond is expected to be above the U.S. Treasury bond yield curve. |
| One-Year-Forward Rate | (1+1-Year Rate)(1+1-Year Rate in 1 Year)=(1+2-Year Rate)^2 |
| What can cause Impact Yield and Cost of Borrowing money increase and become more expensive? | If a credit rating was downgraded from AA to BBB and a company uses debt to buy another company. (A leveraged buyout) |
| Ended after Interest Rates | . |
