Risk-Free Asset

Risk-Free Asset

An asset which has a certain future return. Treasuries (especially T-bills) are considered to be risk-free because they are backed by the U.S. government.

Notes:

Because they are so safe, the return on risk free assets is very close to the current interest rate.

Many academics say that there is no such thing as a risk-free asset because all financial assets carry some degree of risk. Technically, this may be correct. However, the level of risk is so small that, for the average investor, it is OK to consider U.S. Treasuries or Treasuries from stable Western governments to be risk-free.

See also: Government Security, Risk Free Return, T-Bill

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Risk-free asset

An asset whose future normal return is known today with certainty.