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Finance and Accounting > The Time Value of Money > Flashcards

The Time Value of Money Flashcards

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1
Q

Interest rates can be thought of in three way. What are they?

A
  1. Required rate of return
  2. Discount rate
  3. Opportunity cost
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2
Q

What are interest rates composed of? What are the premiums demanded by investors?

A

Interest rates are composed of the ‘risk-free rate’ plus four premiums:

  1. Inflation premium
  2. Default risk premium
  3. Liquidity premium
  4. Maturity premium
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3
Q

What is the nominal risk free rate

A

Risk free plus inflation premium

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Finance and Accounting (4 decks)

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