Most firms use Treasury securities with maturities of ________ to determine the appropriate risk-free rate to use in the CAPM.

Question

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Firms typically use Treasury securities with maturities that are close to the expected holding period of the investment being evaluated. 10-year Treasury securities are often used as a benchmark for the risk-free rate because they are long enough to be considered relatively stable, but not so long that they incorporate too much uncertainty about future interest rates. Using shorter-term securities, such as those with 90-day or 180-day maturities, may not provide an accurate reflection of the risk-free rate for longer-term investments, while using longer-term securities, such as those with 30-year maturities, may incorporate too much uncertainty and thus be less appropriate for shorter-term investments.

Most Firms Use Treasury Securities with Maturities of ________ to Determine