The correct answer is: A. quoted rate
A quoted rate is the interest rate that is publicly advertised by a lender. It is the rate that borrowers will pay on a loan, and it is the rate that lenders will earn on a deposit. The quoted rate is made up of two components: the inflation-free rate of return and the inflation premium.
The inflation-free rate of return is the rate of return that investors would expect to earn on an investment in the absence of inflation. It is the rate of return that investors would expect to earn on a Treasury bill, which is a government bond that is considered to be a very safe investment.
The inflation premium is the additional amount of return that investors demand to compensate them for the risk of inflation. Inflation is the rate at which prices for goods and services are rising. When prices are rising, the purchasing power of money is declining. This means that investors need to earn a higher rate of return on their investments in order to maintain their purchasing power.
The quoted rate is the sum of the inflation-free rate of return and the inflation premium. The inflation-free rate of return is determined by the supply and demand for money, while the inflation premium is determined by the expected rate of inflation.
The quoted rate is important because it is the rate that borrowers and lenders use to make decisions about whether to borrow or lend money. The quoted rate is also important because it is used to calculate the yield on bonds and other investments.
The other options are incorrect because they are not components of the quoted rate.
- Unquoted rate is the rate of interest that is not publicly advertised by a lender. It is the rate that lenders may charge borrowers who are considered to be a higher risk.
- Steeper rate is a rate of interest that is higher than the quoted rate. It is the rate that lenders may charge borrowers who are considered to be a higher risk.
- Portfolio rate is the rate of return that a portfolio of investments earns. It is the average of the rates of return on the individual investments in the portfolio.