The risk-free rate of return can be thought of as consisting of the following two components:
A)a real rate of return, a default premium
B)unanticipated inflation, bond default premium
C)a real rate of return, an inflation premium
D)a zero beta component, an expectation premium

Question

Quizplus · Accepted Answer

The risk-free rate of return consists of a real rate of return and an inflation premium. The real rate of return is the minimum return an investor expects to receive to compensate for the time value of money, while the inflation premium is added to protect against inflation eroding the value of the investment. The other options are either not relevant to the calculation of the risk-free rate or include factors such as default risk or beta, which are not present in risk-free investments.

The Risk-Free Rate of Return Can Be Thought of as Consisting