Although high-quality municipal bonds are the most common proxy for a risk-free rate,Treasury bonds are another alternative.

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Treasury bonds are actually considered the standard proxy for a risk-free rate due to the backing by the U.S. government, which is considered to have virtually no risk of default. Municipal bonds, while often high-quality, do carry some risk and are not typically used as the benchmark for a risk-free rate.

Although High-Quality Municipal Bonds Are the Most Common Proxy for a Risk-Free