Which rate represents the required rate of return on a fixed-income security without risk in an environment of zero inflation?

The required rate of return on a fixed-income security without risk in an environment of zero inflation is represented by the real risk-free interest rate. This rate reflects the yield that investors expect to earn on a debt instrument that carries no risk of default or loss of purchasing power, specifically when inflation is negligible or nonexistent.

The real risk-free interest rate is essentially the compensation investors receive for postponing consumption in a risk-free environment. Since there is no expected inflation, it truly represents the pure time value of money. It’s the foundational rate from which other rates are derived, including nominal interest rates that account for inflation and risk premiums when applicable.

In contrast to this, the nominal rate of interest includes both the real risk-free rate and an inflation premium, meaning it would not accurately reflect a situation of zero inflation. The real rate of interest could also suggest compensation for expected inflation, even if minimal, which does not align with a zero inflation scenario. Lastly, yield to maturity pertains specifically to the total return anticipated on a bond if held until it matures and includes risks and premiums that are not relevant when considering a completely risk-free and stable environment. Hence, the real risk-free interest rate is the most appropriate rate in this context.