Generally, the value to use for the risk-free interest rate is:
A) Short-term Treasury bill rate
B) Long-term Corporate bond rate
C) Medium-term Corporate bond rate
D) none of the above

Question

Quizplus · Accepted Answer

Short-term Treasury bill rate is considered the best choice for the risk-free interest rate because it is the rate at which the US government can borrow money for a short period of time and is deemed to have no default risk. Long-term corporate bond rates and medium-term corporate bond rates have credit risk associated with them, and hence cannot be considered risk-free.

Generally, the Value to Use for the Risk-Free Interest Rate