The interest rate used to define the “risk-free” rate of return is the

By Investopedia AAA
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 are the primary sources of market risk?

    Learn about market risk and the four primary sources of market risk including equity, interest rate, foreign exchange and ...
  2. How does beta measure a stock's market risk?

    Learn how beta is used to measure risk versus the stock market, and understand how it is calculated and used in the capital ...
  3. How does the risk of investing in the electronics sector compare to the broader market?

    Learn how the electronics sector's risk compares to the broader market; discover real-world examples of how high exposure ...
  4. How much of a diversified portfolio should be invested in the electronics sector?

    Learn how investing style determines how much of a diversified portfolio an investor chooses to allocate to the electronics ...
RELATED TERMS
  1. Go-To Rate

    The interest rate that will come into effect after an introductory ...
  2. Purchase Rate

    The interest rate applied to purchases made with a credit card.
  3. Value Of Risk (VOR)

    The financial benefit that a risk-taking activity will bring ...
  4. Risk Financing

    The determination of how an organization will pay for loss events ...
  5. Captive Value Added (CVA)

    The financial benefit that an organization would gain by using ...
  6. Bond

    A debt investment in which an investor loans money to an entity ...

You May Also Like

Related Articles
  1. Trading Strategies

    Understanding Bottoms & Bottoming Patterns

  2. Economics

    Gambling on Macau: Too Risky?

  3. Mutual Funds & ETFs

    Pros & Cons Of Bond Funds Vs. Bond ETFs

  4. Mutual Funds & ETFs

    Is Amazon a Prime Pick for Your Portfolio?

  5. Mutual Funds & ETFs

    Should You 'Like' Facebook in Your Portfolio?

Trading Center