You invest all of your money in 1-year T-bills. Which of the following statements is (are) correct?
I. Your nominal return on the T-bills is riskless.
II. Your real return on the T-bills is riskless.
III. Your nominal Sharpe ratio is zero.
A) I only
B) I and III only
C) II only
D) I, II, and III

Question

Quizplus · Accepted Answer

The nominal return on T-bills is riskless because they are backed by the government. However, the real return is not riskless due to inflation risk. The nominal Sharpe ratio is zero because T-bills have no risk premium.

You Invest All of Your Money in 1-Year T-Bills