Homework Answers
Answer. (a) at which one would lend if there were no risk of default.
Explanation: A risk free rate is the rate of return on an investment where there is absolutely no risk. Thus this statement can be viewed from another perspective. A bank as an investor would lend at this risk free rate to anyone who doesnt have no risk of default, and thus it would be the return that the bank would get. In the other options, like the returns on savings deposits, there is still some risk (like bank illiequidity, government failure, etc).The last two options are not related anywhere specifically to the definition of risk free rate.
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Multiple choice question
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Multiple choice question
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