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 ?
Option Adjusted Spread (OAS) refers to a measurement of the spread of a fixed-income security asset and the risk-free rate of return, which is adjusted to take into account an embedded option.
13) The lucrum cessans is the real risk-free rate of return,
Logically, nobody can hope to fulfill a promise of a long-run return that exceeds the risk-free rate of return - currently less than 1 percent in the United States.
i] is the average rate of return for portfolio i, RFR is the risk-free rate of return, and [R.
The key point here is that because systemic risk is a product of market imperfections, the financial risk it creates is both a component of the risk premium and the risk-free rate of return.
Other critics object to the use of an investment-based discount rate in any circumstances, arguing instead for the use of a risk-free rate of return (e.
Since the lease cash flow consists of just N payments and no other positive cash inflow, the risk-free rate of return will be used for the DCF analysis (Mun, 2003).
The profitability of this kind of asset is equal to risk-free rate of return.
7) Over the sample period, risk-free rate of return was available for every fortnight.
The tools like rate of return, risk, risk-free rate of return were used for risk-return analysis of schemes with reference to market.
With exponential utility functions, individuals' life insurance and stock purchases are independent of each other; life insurance purchases are affected only by individuals' future income, bequest intensity, risk attitude, survival probability, and the insurance risk premium; stock purchases are affected only by individuals' risk attitude, the risk-free rate of return, the stock return, and stock volatility.