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 ?
In principle, cost of equity consists of the risk free rate of return and the premium expected for risk which investors could incur when investing in company's equity.
The data identifying risk premiums on equity and risk free rate of return on shares can be easily sourced in financial publications or calculated from share market information.
As the company operates in Lithuania, valuing its risk free rate of return meant looking at the average yield of eight year maturity Lithuanian government bonds between January 2008 and December 2008, which reached [R.
Investors require risk premium over the risk free rate of return if they invest in stocks.
In a similar way you can analyze an investment project by substituting the expenditures required for the investment for the exercise price, the value of the assets that will be acquired in making the investment for the stock price, the length of time the investment may be deferred as the time to expiration for the option, the risk of the investment as the variance of returns on stock, and the time value of money for the risk free rate of return.
The required level of return on common stock portfolios should obviously be higher than the risk free rate of return in the economy offered by the government securities.
ft] = risk free rate of return which is the tax free of the Post Office Savings Bank (POSB).
ft] = risk free rate of return which is the tax free rate of the Post Office Savings Bank (POSB).

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