The __________ of an asset will help to identify the most appropriate risk-free rate to be used in calculations of expected returns.

A) standard deviation
B) variance
C) life
D) all of the above

Question

The __________ of an asset will help to identify the most appropriate risk-free rate to be used in calculations of expected returns.

A) standard deviation
B) variance
C) life
D) all of the above

Quizplus · Accepted Answer

Generally,the life of the asset will help to identify the most appropriate risk-free rate.The risk-free rate used in calculation of expected return (required return)should have a maturity date matching the life of the asset.In the case of shares,with unlimited life,the risk-free rate estimate will generally be obtained from the longest maturity risk-free assets available.Government perpetuities are rarely observed in the Australian market,and so the yield on the most long-lived available risk-free asset may be used to estimate the risk-free rate.

The __________ of an Asset Will Help to Identify the Most