In a world of certainty, the key decisions influenced by the riskless interest rate are
A) risk premiums demanded by investors.
B) portfolio decisions.
C) diversification decisions.
D) consumption versus saving decisions.

Question

Quizplus · Accepted Answer

The riskless interest rate is a key factor in influencing an individual's consumption versus saving decisions. A higher interest rate would incentivize saving as it increases the return on savings. Conversely, a lower interest rate would incentivize spending as it reduces the return on savings. In a world of certainty, risk premiums demanded by investors, portfolio decisions, and diversification decisions are not affected by changes in the riskless interest rate.

In a World of Certainty, the Key Decisions Influenced by the Riskless