KpossibleRisk-Free Rate. What is a risk-free rate? Give an example of an investment with a riskfree rate. Why is there no risk?A risk-free rate is: (Select the best answer below.)OA. an interest rate that is not guaranteed on an investment for a specified period.OB. an interest rate guaranteed on an investment for a unspecified period.OC. an interest rate guaranteed on an investment for a specified period.OD. an interest rate that is not guaranteed on an investment for an unspecifiedperiod.There is no risk because a risk-free investment: (Select the best answer below.)OA. pays an interest rate guaranteed on an investment for an unspecified period.OB. would pay investors even if the financial institution went into bankruptcy.OC. is a checking account.OD. is a zero interest loan.

Please refer below page.If you have any questions feel free to ask.Explanation:

Answered: K possible Risk-Free Rate. What is a…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 4BIC

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Similar questions

When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market, fixed-interest payments declines, so the market value of the investment falls. How would that drop in fair value be reflected in the investment account for a security classified as HTM? Would your answer change if the drop in fair value was due to worsened financial conditions at the investee?
An investor's required rate of return is equal to: the risk premium the investor feels is necessary to compensate for the riskiness of the asset. the risk-free rate of interest plus a risk premium. the risk-free rate of interest. the risk-free rate of interest plus an inflation premium.
An efficient capital market is best defined as a market in which security prices reflect which one of the following? Multiple Choice A Current inflation B A risk premium C All available information D The historical arithmetic rate of return E The historical geometric rate of return
At any point in time forward rates computed by the yield curve represent the market's best estimates about the future course of short-term interest rates. Hence, for an individual investor who has a one-period investment horizon, it makes no difference what the term to maturity is on the individual security purchased. True/false?
Let rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset. Suppose that this risky asset pays out in states when the aggregate endowment is particularly low. There are three possibilities: ( a) E[r e ] > rf (b) E[r e ] = rf (c) E[r e ] < rf Which case applies to E[r e ] and why?
The IRR is a. the interest rate at which the NPV of the investment is zero. b. the firm’s hurdle rate. c. the same as the ARR. d. None of the above
What determines the anticipated interest rate payout for an investment?
Interest rate risk is the potential for investment ( ) that result from a change in interest rates. If interest rates ( ) , for instance, the value of a bond or fixed-income instrument will decline.
When all else is equal, interest rate risk is smaller with: a) a longer original maturity. b) a shorter remaining maturity. c)a longer remaining maturity d) a shorter original maturity.
The increased change in value that occurs because longer maturity investments are affected more by interest rate changes than are shorter maturity investments is called Blank______ risk. Multiple choice question. maturity interest rate reinvestment rate default
Which of the following is not a determinant of interest rates? a) The Required Rate of Return b) The Liquidity Risk Premium c) The Re-investment Risk Premium d) The Maturity Risk Premium e) None of the above
Explain whether you agree or disagree with the following statement: “The riskless interest rate is the real short-term interest rate that would prevail if there were no transitory financial disturbances.

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