A:

a. discount rate.

b.
90-day Treasury bill rate.

c.
five-year Treasury note rate.

d.
federal funds rate.






Answers: b

The 90-day Treasury bill rate is used because there is no credit risk, and the maturity is so short that there is no liquidity or market risk. The five-year Treasury also has no credit risk, but if interest rates rise, the market value could decline.



RELATED FAQS

  1. What is the relationship between the current yield and risk?

    Discover the relationship between a bond’s current yield and risk, and how investors can use it to benefit their overall ...
  2. When has the United States run its largest trade deficits?

    Learn in what year the United States ran its largest negative balance of trade as a result of imports greatly exceeding the ...
  3. What does a high turnover ratio signify for an investment fund?

    Find out more about the turnover ratio, what the turnover ratio measures and what a high turnover ratio indicates about an ...
  4. Does index trading increase market vulnerability?

    Learn how the rise in popularity of passive ETFs and mutual funds tracking indexes has increased the correlation among stocks, ...
RELATED TERMS
  1. Return On Investment - ROI

    A performance measure used to evaluate the efficiency of an investment ...
  2. Delivered Duty Unpaid - DDU

    A transaction in international trade where the seller is responsible ...
  3. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  4. Political Risk Insurance

    Coverage that provides financial protection to investors, financial ...
  5. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  6. European Monetary System - EMS

    A 1979 arrangement between several European countries which links ...

You May Also Like

Related Articles
  1. Investing

    Go Green with a Investment in Green ...

  2. Fundamental Analysis

    4 Utility Stocks that May Stay Bright

  3. Investing

    Short-Term Funds or Fixed Deposits: ...

  4. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Australia

  5. Professionals

    Is a Google Robo-Advisor on the Horizon?

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!