What is meant by the real risk-free rate of interest?
A) The opportunity cost of foregoing consumption, representing the rate that must be offered to individuals to persuade them to save rather than consume.
B) The rate actually used in the market, not in textbooks.
C) The rate quoted on short-term Treasury bills.
D) The nominal risk-free interest rate, less the expected inflation.

Question

Quizplus · Accepted Answer

The real risk-free rate of interest is the rate that compensates investors for deferring consumption, representing the opportunity cost of capital in the absence of inflation and risk.

What Is Meant by the Real Risk-Free Rate of Interest