Risk Free Interest Rates

3.      What is a risk-free rate? Give an example of an investment with a risk-free rate. Why is there no risk?

4.     Where do financial institutions obtain funds for making loans? How are the interest rates for loans determined? Are the interest rates the same for all borrowers? Why or why not?

5.     What effect would a general change in current interest rates have on you as a depositor or borrower?

6.      In considering investments with different degrees of risk, what two factors will

7.      influence an investor’s decision? What is an appropriate investment for an

individual who needs funds in a short period of time for necessities?

8.     Briefly discuss conditions that can cause a shift in the demand for funds and a change in the interest rate.

9.     Why is a high risk premium an advantage for the investor? Why is a low risk premium an advantage for an investor?

10.    Explain why a weak economy may cause the risk premium to rise.

Risk Free Interest Rates

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