Quant 1

Question 1

r =

Answer 1

Realrisk-freeinterestrate + 
Inflationpremium + 
Defaultriskpremium + 
Liquiditypremium + 
Maturitypremium

Question 2

Required Rate of Return

Answer 2

The rate of return required by the investor

Question 3

Discount Rate

Answer 3

The rate at which some future value is discounted to arrive at a value today

Question 4

Opportunity Costs

Answer 4

The value an investor or lender forgoes by choosing a particular action

Question 5

Inflation Risk Premium

Answer 5

Compensates for expected inflation

Question 6

Default Risk Premium

Answer 6

Compensates for credit risk

Question 7

Liquidity Risk Premium

Answer 7

Risk of loss vs. fair value if an investment needs to be converted to cash quickly

Question 8

Maturity Risk Premium

Answer 8

Greater interest rate risk with longer maturities as the longer time period, the more uncertainty

Question 9

Real Risk-Free Interest Rate

Answer 9

Is the single-period interest rate for a completely risk-free security if no inflation were expected.

Question 10

Nominal Risk-Free Interst Rate

Answer 10

Sum of the real risk-free interest rate and the inflation premium