The Closest Approximation to the Real, Risk-Free Rate of Interest

question 60

Multiple Choice

The closest approximation to the real, risk-free rate of interest is

• A) The short-term Treasury bill rate plus the inflation rate.
• B) The short-term Treasury bill rate minus the inflation rate.
• C) The 10 year Treasury bond rate minus the inflation rate.
• D) The 10 year Treasury bond rate minus the 1 year Treasury bill rate.

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Definitions:

Maturities

The set dates when the principal amount of a debt instrument, such as a bond or loan, is to be paid back to the lender.

Unfunded Liabilities

Future retirement benefits and other obligations not covered by assets or financial reserves, often discussed in the context of pension plans.

Notes

Short-term or medium-term debt obligations issued by companies or governments.

Floating-Rate Bonds

Bonds with variable interest rates that adjust periodically based on a benchmark or index rate.