Some characteristics of the determinants of nominal interest rates are listed as follows. Identify the components (determinants) and the symbols associated with each characteristic:
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.
This is the rate on a Treasury bill or a Treasury bond.
This is the premium added to the real risk-free rate to compensate for a decrease in purchasing power over time.
This is the difference between the interest rate on a U. S. Treasury bond and a corporate bond of the same profile-that is, the same maturity and marketability.
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. As interest rates rise, bond prices fall, and as interest rates fall, bond prices rise. Because interest rate changes are uncertain, this premium is added as a compensation for this uncertainty.