Reading 5: The Time Value of Money-LOS b习题精选

2010, statements, following, expected, interest

Session 2: Quantitative Methods: Basic Concepts
Reading 5: The Time Value of Money

LOS b: Explain an interest rate as the sum of a real risk-free rate, expected inflation, and premiums that compensate investors for distinct types of risk.

Which one of the following statements best describes the components of the required interest rate on a security?

A)	The real risk-free rate, the expected inflation rate, the default risk premium, a liquidity premium and a premium to reflect the risk associated with the maturity of the security.

B)	The nominal risk-free rate, the expected inflation rate, the default risk premium, a liquidity premium and a premium to reflect the risk associated with the maturity of the security.

C)	The real risk-free rate, the default risk premium, a liquidity premium and a premium to reflect the risk associated with the maturity of the security.

The required interest rate on a security is made up of the nominal rate which is in turn made up of the real risk-free rate plus the expected inflation rate. It should also contain a liquidity premium as well as a premium related to the maturity of the security.

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发表于 2010-4-6 14:35 | 只看该作者

T-bill yields can be thought of as:

A)	nominal risk-free rates because they contain an inflation premium.

B)	nominal risk-free rates because they do not contain an inflation premium.

C)	real risk-free rates because they contain an inflation premium.

T-bills are government issued securities and are therefore considered to be default risk free. More precisely, they are nominal risk-free rates rather than real risk-free rates since they contain a premium for expected inflation.

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