Final answer:
The sacrifice of today's consumption for future consumption is captured in the real risk-free rate component of an interest rate. This is separate from adjustments for inflation, liquidity, and maturity risks, which are also part of the total interest rate but address other concerns.
option a is the correct
Step-by-step explanation:
The student is asking about the component of an interest rate that compensates investors for the postponement of consumption. When an investor chooses to save rather than consume, they expect to be compensated for this deferral. We can divide an interest rate into several components.
One of these components is compensation for delaying consumption, which reflects the cost of forgoing current spending to save for future spending. This is known as the real risk-free rate.
It is different from the adjustments made for expected inflation (captured by the inflation rate) and premiums added for uncertainty and riskiness of the borrower, such as the liquidity premium and the maturity risk premium.
In summary, the sacrifice of today's consumption for later consumption is captured in the real risk-free rate. This rate does not include considerations for liquidity, inflation, or the added risk related to the length of an investment's maturity, which are accounted for separately in the overall interest rate calculation.