Benchmark For Risk-Free Rate

This problem practices the logic behind selecting an appropriate discount rate input in intrinsic valuation, especially how the risk-free rate should be matched to the timing of the cash flows being valued. Candidates need to understand the theory behind using government securities as a proxy for a default-free rate, as well as the practical compromise used in real-world valuation when long-dated instruments can be less liquid. Interviewers ask this because it tests whether you know the assumptions behind discounted cash flow analysis and can translate textbook finance into a market-based valuation approach.