The interest rates we observe in the economy differ from the risk-free rate because of:

A) the real rate of interest.
B) diversification.
C) risk premiums.
D) all the above

Risk Premiums

Additional returns expected by investors for taking on additional risk compared to a risk-free investment.

Risk-Free Rate

The return on an investment with no risk of financial loss, often represented by the yield on government securities like U.S. Treasury bonds.

Real Rate

The real rate is the interest rate that has been adjusted for inflation, representing the true cost of borrowing or the real yield on an investment, distinct from the nominal rate.