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

By Investopedia Staff 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.



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