For Complete Certainty in Relation to the Risk Free Rate

question 31

Multiple Choice

For complete certainty in relation to the risk free rate, which two of the following conditions are needed?

• A) The risk of default must be zero.
• B) Investors shall become gradually less risk averse over time.
• C) When intermediate cash flows are earned on a multi- year investment there is no uncertainty about reinvestment rates.
• D) Future required rates of interest must be covariant with the bank rate.

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Definitions:

Originality

The quality of being novel and not derived from something else; creativity in thought or expression.

Janusian Thinking

A cognitive approach characterized by considering opposing ideas or concepts simultaneously, facilitating creative and innovative solutions.

Autonomy

The degree of freedom and independence an individual or unit has to make decisions and carry out actions within their role or responsibility.

Freedom

The state of being free or at liberty rather than in confinement or under physical restraint; often includes the power to act, speak, or think without externally imposed restraints.