The two components that make up the risk-free rate are:
A)real rate of return and capital gains.
B)risk-free assets and capital gains.
C)real rate of return and the inflation factor.
D)real assets and the inflation factor.
E)capital gains and the inflation factor.

Question

Quizplus · Accepted Answer

The risk-free rate is typically composed of two components: the real rate of return and the inflation factor. The real rate of return represents the return an investor can receive without any inflation or risk. The inflation factor is added to account for the erosion of purchasing power due to inflation. Thus, choice C is correct as it includes both of these components. Choices A, B, D, and E are incorrect as they do not accurately describe the two components that make up the risk-free rate.

The Two Components That Make Up the Risk-Free Rate Are