Risk-Free Interest Rate

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Risk-Free Interest Rate

Describes return available to an investor in a security somehow guaranteed to produce that return. The risk-free interest rate compensataes the investor for the temporary sacrifice of consumption.

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.
References in periodicals archive ?
Since merger spreads incorporate an interest rate component, an increase in the risk free rate may increase the returns of merger arbitrage portfolios.
In defining a credit crunch we aim to distinguish 'normal' shifts in loan supply (due for instance to changes in the risk free rate from a monetary policy decision) from excessive contractions in credit.
For instance, the present value at the risk free rate [r.
We made slight revisions to our assumptions, but thanks mainly to a lower risk free rate and incorporating higher multiples-based valuation, we arrive at a higher target share price of TRY8.
The lessons of the Asian Financial Crisis, in particular, were that even countries running large government surpluses would benefit from the creation of a local currency bond market, as the true risk free rate was twice if not three times the USD 30-year bond yield.
Cash flows are discounted at WACC, while investments are discounted at risk free rate account.
Out of the MSM listed stocks, 25 stocks had positive returns, 19 stocks had returns in excess of the country s risk free rate and 9 companies had double digit price returns.
The risk free rate chosen in this project is the rate of return of government bonds for 1 year maturity for the current year.
The general ride to use the risk free rate seems carded over from when the valuation objective was fair value.
the risk free rate of interest, the contract duration, the strike price, and the asset value at inception) are given, and the premia can be easily computed, using the formulas developed in the paper.
In principle, cost of equity consists of the risk free rate of return and the premium expected for risk which investors could incur when investing in company's equity.
The second graph of Figure 9 shows that under all the three conditions when the riskfree rate of return increases the individual reduces life insurance purchases, though at different speeds--faster under Case 2 (when the stock return is fixed ) than under Case 1 (when stock return increases with the risk free rate of return).

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