Suppose That a Security with a Risk-Free Cash Flow of $1000

question 77

Multiple Choice

Suppose that a security with a risk-free cash flow of $1000 in one year trades for $930 today.If there are no arbitrage opportunities,then the current risk-free rate is closest to:

• A)6.0%
• B)6.5%
• C)7.0%
• D)7.5%

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Definitions:

Taco

A traditional Mexican dish consisting of a small hand-sized tortilla topped with a filling.

Burrito

A Mexican-inspired dish consisting of a large wheat flour tortilla wrapped or folded around a filling that typically includes meat, beans, rice, cheese, and vegetables.

Opportunity Cost

The cost of foregoing the next best alternative when making a decision or choosing one option over another.

Market Value

The current price at which an asset or service can be bought or sold in an open market.