The fundamental determinants of interest rates are the real risk-free rate, inflation, and the risk premium.

Question

Quizplus · Accepted Answer

The real risk-free rate, inflation, and the risk premium are indeed the fundamental determinants of interest rates. The real risk-free rate is the rate of return on a risk-free investment that has no inflation factor. Inflation refers to the rate at which prices of goods and services increase. The risk premium is the difference between the real risk-free rate and the actual interest rate, reflecting the risk involved in an investment. Together, these three factors determine the interest rate for a particular investment.

The Fundamental Determinants of Interest Rates Are the Real Risk-Free