Which of the following is true of the real risk-free rate of interest?
A)Most experts think that the real risk-free rate fluctuates in the range of 15 to 20 percent in the United States.
B)The real risk-free rate must include a component for the average inflation.
C)The real risk-free rate is the sum of nominal rate of interest and the average inflation rate.
D)It is easy to measure the real risk-free rate precisely.
E)It is the rate of interest that would exist on default-free U.S. Treasury securities if no inflation were expected in the future.

Question

Quizplus · Accepted Answer

The real risk-free rate of interest is the rate that would exist on default-free U.S. Treasury securities if no inflation is expected in the future. Option A is incorrect as the real risk-free rate typically fluctuates in a much lower range than 15 to 20 percent. Option B is partially correct as the real risk-free rate does account for inflation but it is not a component of it. Option C is incorrect as the real risk-free rate and the nominal rate of interest are not the same. Option D is incorrect as it is difficult to measure the real risk-free rate precisely.

Which of the Following Is True of the Real Risk-Free