Detailed Answer
(b) The requirement is to identify the nature of LIBOR.
Answer (b) is correct because LIBOR, like the prime rate, is an
example of a nominal rate. It is adjusted for inflation risk, but not
credit risk. Answer (a) is incorrect because the risk-free rate is a
theoretical rate that is not quoted. Answer (c) is incorrect because
LIBOR is not credit risk adjusted. Answer (d) is incorrect
because LIBOR is a short-term rate.
