Which of the following is/are FALSE regarding risk-free rates?
I )The 30-year Treasury bonds match the cash flow streams of a company better,and therefore should be used over 10-year bonds in estimating the risk-free rate.
II )One should use government bond yields denominated in the same currency as the company's cash flow to estimate the risk-free rate.
III )One should ensure that the inflation rate embedded in the cash flows is consistent with the inflation rate embedded in the government bond rate being used.

Question

Quizplus · Accepted Answer

I is false because the choice of Treasury bonds (whether 30-year or 10-year) for estimating the risk-free rate does not necessarily depend on matching a company's cash flow streams but rather on the need for a risk-free benchmark. II and III are true statements regarding the estimation of the risk-free rate.

Which of the Following Is/are FALSE Regarding Risk-Free Rates