Which of the following is considered the best proxy for the Risk-Free Rate? • a. The yield on 90-day bank bills O b. The interest rate on 1 Year Term Deposits O c. The Singaporean Credit Default Swap (CDS) converted to USD O d. 10-Year US Treasuries O e. 30 Year Treasury Inflation-Linked Bonds
Question
Which of the following is considered the best proxy for the Risk-Free Rate? • a. The yield on 90-day bank bills O b. The interest rate on 1 Year Term Deposits O c. The Singaporean Credit Default Swap (CDS) converted to USD O d. 10-Year US Treasuries O e. 30 Year Treasury Inflation-Linked Bonds
Solution
d. 10-Year US Treasuries
The 10-Year US Treasury is often considered the best proxy for the risk-free rate. This is because U.S. government securities are considered free from credit risk as they are backed by the full faith and credit of the U.S. government. Among these securities, the 10-year Treasury note is frequently used as a benchmark for other interest rates and is often used in financial models as a proxy for the risk-free rate due to its long-term nature.
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