The Risk-Free Rate Is Usually Approximated by Interest Rates on U.S

question 28

Multiple Choice

The risk-free rate is usually approximated by interest rates on U.S. government debt, because the U.S. government:

• A) is considered extremely unlikely to default.
• B) sets all policy concerning interest rates.
• C) has all loans protected by the Federal Reserve.
• D) is the largest source of loanable funds in the economy.

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Definitions:

Sole Proprietorship

A firm with a single owner who has the right to all profits but who also bears unlimited liability for the firm’s losses and debts.

Personal Liability

An individual's legal responsibility to settle a debt or fulfill an obligation from their own assets, as opposed to the liabilities being limited to business assets.

Business Organization

A legal entity formed to conduct business activities, ranging from sole proprietorships to corporations, structured according to law and operational needs.

Household Income

The combined gross income of all members of a household, encompassing wages, salaries, benefits, and other income sources before taxes.