... general, we use the T-billrate to approximate the short-term risk-free rate, and the T-bond rate to approximatethe long-term risk-free rate. So, whenever you see the term “risk-free rate,” assumethat ... interest rate charged, rT-bill, would be the real risk-free rate, r*, plus the infla-tion premium (IP):rT-billϭ rRFϭ r* ϩ IP.Therefore, if the real short-term risk-free rate of interest ... recession led the Fed-eral Reserve to cut short-term interest rates eight times between May 2000 and Octo-ber 2001. While short-term rates fell by 3.5 percentage point, long-term rates wentdown...