The use of Treasury Bills to set the riskfree rate tends to
A) set a large riskfree rate.
B) favor aggressive portfolios.
C) set return benchmarks for margin portfolios that are too high.
D) assume too large a borrowing rate.

Question

Quizplus · Accepted Answer

Treasury Bills are considered to be risk-free investments because they are backed by the government. As a result, they are often used as a benchmark to determine the risk-free rate of return. However, this can lead to setting return benchmarks for margin portfolios that are too high, which can lead to aggressive investing strategies and increased risk-taking. This can ultimately lead to negative consequences such as higher borrowing rates and overall portfolio losses.

The Use of Treasury Bills to Set the Riskfree Rate