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 ?
The model indicates that a fair rate of return on underwriting is the negative of risk-free interest rate multiplied by the fund-generating coefficient "a"plus the risk premium of underwriting.
The Working Group on Sterling Risk-Free Reference Rates a group of major dealers active in sterling interest rate swap markets has today announced SONIA as its preferred near risk-free interest rate benchmark (RFR) for use in sterling derivatives and relevant financial contracts.
The risk-free interest rate was estimated from the yields of government bonds corrected for inflation.
10)] is the 10-year risk-free interest rate, and [eta] is a systematic default risk premium.
We study the sensitivity of the interaction between the interest rate guarantee and the asset allocation when the risk-free interest rate changes.
The first method implies that the benchmark asset is the risk-free interest rate i the economy and the second implies that any risky asset can be used as the benchmark asset (Barnett and Wu, 2005).
Among these, the average floor for the risk-free interest rate is 4 percent.
If we knew for sure that the worst outcomes from climate change could be addressed successfully in the future, then the appropriate price for emissions would actually be less than the average damages discounted by the risk-free interest rate because climate change damages would be a hedge.
The risk-free interest rate affects the price of an option in a less clear-cut way.
The risk-free interest rate is appropriate because all risk is built into the expected cash flows.
Companies will be offered with the probability of utilizing another risk-free interest rate for assessment of accountabilities than the government bond rate only.
The interest rate on 10-year Treasury bond is often used to represent the risk-free interest rate on long term investments.