The observed market interest rate (r) can be expressed as r = RR x IP.

Question

Quizplus · Accepted Answer

The observed market interest rate (r) is typically expressed as the sum of the real risk-free rate (RRFR) and various premiums, such as the inflation premium (IP), default risk premium, liquidity premium, and maturity premium. A more accurate formula would be r = RRFR + IP + DRP + LP + MP, where DRP is the default risk premium, LP is the liquidity premium, and MP is the maturity premium.

The Observed Market Interest Rate (R) Can Be Expressed as R