Which of the Following Is True of the Real Risk-Free

question 48

Multiple Choice

Which of the following is true of the real risk-free rate of interest?

• A)Most experts think that the real risk-free rate fluctuates in the range of 15 to 20 percent in the United States.
• B)The real risk-free rate must include a component for the average inflation.
• C)The real risk-free rate is the sum of nominal rate of interest and the average inflation rate.
• D)It is easy to measure the real risk-free rate precisely.
• E)It is the rate of interest that would exist on default-free U.S. Treasury securities if no inflation were expected in the future.

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Definitions:

Public Interest Theory

A theory suggesting that regulation is supplied in response to the demand of the public for the correction of inefficient or inequitable market practices.

Excise Tax

A tax on the sale or consumption of specific goods or services, such as tobacco, alcohol, and fuel.

Per Gallon

A unit of measurement used to quantify quantities, such as fuel efficiency or liquid commodity prices, based on volume per gallon.

Per Capita

A statistical measure that divides an aggregate by the number of individuals in the population, often used to express averages.