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 ?
The model states that one year expected return on a security is the sum of risk free return and some risk premium for the same one year period.
Since government securities yield a healthy risk free return banks will continue to prefer financing government's deficit through investment in fixed income securities.
Effective measures on three main criteria Gordon model ( projected dividend discount rate growth rate), including industry outlook, earnings, operating cash flow, payment of dividends, market beta, risk free return rate of earnings growth and dividend growth rates were.
The investor is secured of receiving his money in full along with a risk free return of 20% per annum along with bonuses, if any.
Basil Al-Ghalayini, CEO of BMG Financial Group, said: "In the past, sovereign debt used to be classified as risk free return.
It is the trust of the valuable clients that they prefer to invest in NSS for better and risk free return without any hidden charges, it added.
fm] = average risk free return over the sample period, and sd = standard deviation of excess returns over the sample period.
This limit corresponds to a risk free return in the same sense that the limit [sigma] going to zero corresponds to a risk free limit.
I, therefore, use the same risk free return to estimate the risk premia of Islamic stocks as I use for industries.
In fact investing in government securities still offers lucrative and risk free return.
Since government securities yield a healthy risk free return, banks prefer financing the fiscal deficit through investment in fixed income securities rather than focus more on taking risk and extend private sector credit, which declines investment to GDP ratio.

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