Which of the following statements is most correct?
A) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal for the shortest term federal securities.
B) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal for the longest term federal securities.
C) The real risk-free rate of interest is a rate that has been adjusted to remove the effects of inflation for some period, while the nominal risk-free rate of interest reflects the rate of inflation for some period.
D) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal for the longest term federal securities, plus a forecast of the rate of inflation for the period of the securities.

Question

Which of the following statements is most correct? 
A) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal for the shortest term federal securities.
B) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal for the longest term federal securities.
C) The real risk-free rate of interest is a rate that has been adjusted to remove the effects of inflation for some period, while the nominal risk-free rate of interest reflects the rate of inflation for some period.
D) The real risk-free rate of interest is the rate that is shown in the Wall Street Journal for the longest term federal securities, plus a forecast of the rate of inflation for the period of the securities.

Quizplus · Accepted Answer

The real risk-free rate of interest is the rate that has been adjusted to remove the effects of inflation for some period, while the nominal risk-free rate of interest reflects the rate of inflation for some period. This is because the real rate of return is the return on an investment adjusted for inflation, while the nominal rate of return is the return on an investment without adjusting for inflation. The rates shown in the Wall Street Journal are nominal rates, not adjusted for inflation.

Which of the Following Statements Is Most Correct