Asked by Monshadrik Hunter on May 20, 2024
Verified
The __________ component of the term structure does not influence the shape of the term structure, rather it affects the overall level of interest rates.
A) Inflation premium
B) Interest rate risk premium
C) Real rate of interest
D) Default risk premium
E) Liquidity premium
Real Rate of Interest
The yield a investor foresees receiving, once inflation adjustments are made.
Term Structure
The term structure represents the relationship between the interest rates and the different maturities of debt securities, often depicted in the form of a yield curve.
- Investigate the framework of interest rates and their constituents.
Verified Answer
TS
Trisha SalcedoMay 27, 2024
Final Answer :
C
Explanation :
The real rate of interest is a fundamental component that affects the overall level of interest rates rather than the shape of the term structure. It represents the compensation investors demand for deferring consumption, without considering inflation or other types of risk.
Learning Objectives
- Investigate the framework of interest rates and their constituents.