The key components of a market interest rate are the risk-free rate and the credit risk premium. During a credit crisis, these two components may chan
The key components of a market interest rate are the risk-free rate and the credit risk premium. During a credit crisis, these two components may change substantially, but in different ways. Write a short essay that describes how the risk-free rate and the risk premium may change during a credit crisis. Explain why the financial markets can become paralyzed during a crisis. Is it because of changes in the risk-free rate or changes in the risk premium?