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 Table 4 we show the estimated prices of the illustrative mortality-linked security under different assumed risk-free interest rates.
The important recommendations were that there is a need to expedite the issuance of a public debt law that will pave way for the issuances of government bonds and building yield curve to be used as a reference for nominal risk-free interest rates, and that there should be an alternative for bank financing, and that the existence of long-term investment funds necessary for completing the infrastructure for the market.
The former would work to reduce long-term risk-free interest rates and, if undertaken one country at a time, it would also induce a devaluation of the currency.
spread between the domestic and foreign risk-free interest rates as they
Is flexible enough to calculate the effects of changes in volatility factors, risk-free interest rates, dividends and estimates of expected early exercise over the option's term.
0]--the ratio of callable long and non-callable duration-matched risk-free interest rates.
Specifically, they are: low-grade municipal bonds as an asset class may (1) show evidence of possessing a higher proportion of calls and/or weaker call protection than high-grade municipal bonds; and (2) demonstrate a return generation process which would suggest that changes in risk-free interest rates and/or the economy account for a significant amount of the relative return variation in the low-grade municipal market overall.
Assuming that risk-free interest rates return to historical levels, operating earnings-based returns on average equity that fail to approximate 10% or higher, which compares to PartnerRe's 2006-2010 average of between 16%-17%;
Their approach to calculating the intrinsic value of the Dow represents an attractive alternative to traditional market valuation techniques that have been found to have little predictive power, in part because they do not incorporate changes in risk-free interest rates over time.
The mix of borrowing and investment in CPI bonds changes quickly and dramatically when the deductible is in the vicinity of 6 percent per year, the spread between the nominal and the real risk-free interest rates.
Amazingly, this yield spike has occurred at a time of rapidly falling commodity prices and inflation, as well as during a time of collapsing risk-free interest rates.
The FAS 123R share-based compensation expenses are expected to vary depending on the number of new grants issued to both current and new employees, and changes in the Company's stock price, stock market volatility, expected option life, and risk-free interest rates (all of which are difficult to estimate).