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.



RELATED FAQS

  1. What is the best way to study for the series 63 exam?

    Learn more about the content of the series 63 exam and how candidates should prepare for the test. Find out about potential ...
  2. Does a negative correlation between two stocks mean anything?

    Learn what the concept of negative correlation means, understand how it is generally calculated and see how it is used in ...
  3. What makes command economies fail?

    Read about three competing theories about the failure of socialism and command economies: human incentives, political corruption ...
  4. I would like a refund for my Series 63 exam. What should I do?

    Learn more about the Series 63 exam and the NASAA policy on refunds of exam fees. Find out how the exam waiting periods work, ...
RELATED TERMS
  1. Apple iOS

    Apple iOS stands for Apple iPhone Operating System. iOS is currently ...
  2. Apple iTunes

    Apple iTunes is software primarily used to play and store media ...
  3. Apple Pay

    Apple Pay is a payment system, introduced by Apple in September ...
  4. After-sales Support

    After-sales support, sometimes called after-sales service, is ...
  5. Social Networking Service (SNS)

    SNS stands for “social networking sites.” SNS users create a ...
  6. Ad Blocking Software

    Ad blocking software removes advertisements from websites. Some ...

You May Also Like

Related Articles
  1. Investing

    Risks and Rewards of Biotech Companies

  2. Stock Analysis

    FireEye Shows Evidence That Profits ...

  3. Stock Analysis

    When Will Celgene's Key Patents Expire?

  4. Stock Analysis

    Why Do Investors Want Intel to Get Bigger?

  5. Stock Analysis

    Micron Technology: Big Bargain or Value ...

Trading Center