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

    a. discount rate.b. 90-day Treasury bill rate.c. five-year Treasury note rate.d. federal funds rate. Answers: bThe 90-day ... Read Answer >>
  2. Why are treasury bond yields important to investors of other securities?

    Learn about the wide-ranging impact of U.S. Treasury Bond yields on all other interest-bearing instruments in the economy ... Read Answer >>
  3. How are treasury bills taxed?

    Read about how the Internal Revenue Service collects taxes on treasury bills purchased from the United States government ... Read Answer >>
Related Articles
  1. Investing

    The Importance Of U.S. Treasury Rates

    U.S. Treasury bond interest rates affect more than just bondholders! It impacts the day to day lives of all consumers.
  2. Investing

    Understanding Treasury Yield

    Treasury yield refers to the return on an investment in a U.S. government debt obligation, such as a bill, note or bond.
  3. Investing

    What's a 10-Year Treasury Note?

    A 10-year Treasury note is an intermediate debt obligation issued by the United States government, and with a ten-year maturity date.
  4. Investing

    Introduction to Treasury Securities

    Purchasing bonds that are backed by the full faith and credit of the U.S. government can provide steady guaranteed income and peace of mind. Knowing the characteristics of each type of treasury ...
  5. Investing

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.
  6. Financial Advisor

    Top 4 Treasurys ETFs (SHY, IEI)

    Learn about the specifics of the top four U.S. Treasury ETFs and how investors can buy ETFs that invest in bonds along the yield curve.
  7. Investing

    The Treasury And The Federal Reserve

    Find out how these two agencies create policies to stimulate the economy in tough economic times.
  8. Investing

    Buy Treasuries Directly From The Fed

    If you want government securities, go straight to the source. We'll show you how.
  9. Investing

    The Brexit Effect on U.S. Mortgage Rates

    The Brexit vote is expected to create a continuing investor rush to buy U.S. Treasuries as a safe-haven, resulting in lower mortgage rates for borrowers in the U.S.
RELATED TERMS
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt ...
  2. 30-Year Treasury

    A U.S. Treasury debt obligation that has a maturity of 30 years. ...
  3. 10-Year Treasury Note

    A debt obligation issued by the United States government that ...
  4. United States Treasury Money Mutual Funds

    An investment fund that pools money from investors to purchase ...
  5. Five Against Note Spread - FAN

    A spread in the futures markets created by taking offsetting ...
  6. Spot Rate Treasury Curve

    A yield curve constructed using Treasury spot rates rather than ...
Hot Definitions
  1. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  2. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  3. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  4. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  5. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  6. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
Trading Center