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 ?
A higher variance of innovations to future consumption growth increases the variance of returns on the wealth portfolio and, hence, of the pricing kernel, leading to a higher equity premium and lower risk-free rates.
Country-level macroeconomic variables Risk-free rates 10-year govt bond yields 10-year benchmark govt bond redemption yield Deposit interest rates Interest rates on households and non- financial corporations deposits with agreed maturity Macroeconomic fundamentals Private credit to GDP Outstanding loans and securities to the private sector at beginning of period over annual GDP Domestic demand Growth of domestic demand component of GDP GDP growth Growth of GDP Investment growth Growth of Gross Fixed Capital Formation (GFCF) Banks' econ.
Social safety nets are being lowered and there will be no tailwind from falling risk-free rates to boost returns.
But when a more flexible utility function is used--a utility function designed to fit both the low risk-free rates and high equity risk premiums that we see in financial markets--then the stand one takes on hedging versus catastrophic risk can matter a lot.
5 per cent, as continued low risk-free rates, tightening credit spreads and bond purchases through quantitative easing programs were all supportive performance trends during the year.
Using the much lower risk-free rates, these studies then project multi-trillion dollars of unrecorded and unfunded pension liabilities.
Long-term bond yields are very low, due to very low risk-free rates and moderate credit spreads.
Prudential was able to increase starting costs after a calming of market volatility and a review of risk-free rates meant the cost of providing guarantees behind the Income Choice Annuity had fallen.
We assume that asset values are lognormally distributed and that the risk-free rates of interest are constant through time.
However, increasing the risk-free rates of Equations (6) and (7) up to the cost of debt would be an exaggeration, since default risk for debt and interest payments is higher than for depreciation tax shields.
Though these numbers remain notably above the equivalent risk-free rates, we clearly saw signs of improvement in financial markets.
The innovative characteristic of a make-whole call provision is that the call price floats inversely with risk-free rates.