The risk-free rate is equal to the real rate of return plus
A) an expected inflation premium.
B) a risk premium.
C) both an inflation and a risk premium.
D) the prevailing prime rate.

Question

Quizplus · Accepted Answer

The risk-free rate is typically equal to the real rate of return plus an expected inflation premium. This accounts for the loss of purchasing power over time due to inflation, but does not include additional premiums for risk since it is considered "risk-free".

The Risk-Free Rate Is Equal to the Real Rate of Return