Risk-Free Interest Rate

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Risk-Free Interest Rate

Describes return available to an investor in a security somehow guaranteed to produce that return. The risk-free interest rate compensataes the investor for the temporary sacrifice of consumption.

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.
References in periodicals archive ?
The risk free interest rate is constant when B = 0--the baseline case in Campbell and Cochrane (1999).
First, we use as test assets the FTSE all share returns, the risk free interest rate, and six sectors returns (industrial, oil and gas, materials, consumption goods, health care, and non-financial sectors).
Theta and rho give information about option sensitivity to time and changes in the risk free interest rate.
While the easing of the monetary policy reduces the interest rate and company's profit look very attractive as compare to risk free interest rate this increases the overall level of economic activity and stock price responds in a positive manner.
We changed, previously, our risk free interest rate for Egypt, from 13% to 11%, to account for the monetary loosening cycle that commenced in February 2009.
The equity price (eqp) can be written recursively as dependent on profit per unit of capital (prof) and the discounted value of next period's equity price, where the discount factor is made up of a real risk free interest rate (rr) and an equity premium (eprem) :
represents the domestic risk free interest rate, "[r.
We assume that the risk free interest rate on one-period bonds [r.
Krauss and Ross (1982) argue that, in the context of their model, the risk free interest rate should be considered as a "real" or inflation adjusted rate if expected claim costs are set at current prices.
In particular, in the past the difference between returns on equity and risk free interest rates was too high.
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.
This paper explains a more interesting relationship between risky price and risk free interest rates.

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