risk-free return

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Risk-Free Return

The return on any investment with such low risk that the risk is considered to not exist. A common example of a risk-free return is the return on a U.S. Treasury security. The risk-free return exists in order to compensate the investor for the temporary tying up of his/her capital, even though it is not put at risk. See also: Capital Allocation Line, riskless investment.

risk-free return

The annualized rate of return on a riskless investment. This is the rate against which other returns are measured. See also excess return.

Risk-free return.

When you buy a US Treasury bill that matures in 13 weeks, you're making a risk-free investment in the sense that there's virtually no chance of losing your principal (since the bill is backed by the US government) and no threat from inflation (since the term is so short).

Your yield, or the amount you earn on that investment, is described as risk-free return. By subtracting the risk-free return from the return on an investment that has the potential to lose value, you can figure out the risk premium, which is one measure of the risk of choosing an investment other than the 13-week bill.

References in periodicals archive ?
1) Consumer confidence & spending, (2) inflation & risk free interest rates, and (3) competitive currency devaluations are the primary risks," according to Mr.
Mr O'Halloran maintained QBE's 16 to 18 per cent insurance margin target range for the full year, although it's conditional on no further reductions in risk free interest rates and large individual risk and catastrophe claims not exceeding the group's allowance.
Under a new accounting rule (SFAS 115) effective on January 1, 1994, the Partnership was required to write down certain CMO residuals in its portfolio to "fair value" because there had been a decline in yield below risk free interest rates for investments of comparable duration.
Under the new accounting rule (SFAS 115) effective on January 1, 1994, the company was required to write down certain CMO residuals in its portfolio to "fair value" because there had been a decline in yield below risk free interest rates for investments of comparable duration.
The Company also announced that as a result of a new accounting rule -- SFAS 115 -- which went into effect on January 1, 1994 the cost basis of individual mortgage securities are required to be written down to "fair value" if there was a decline in yield below risk free interest rates for investments of comparable duration.

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