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 ?
Frankfurt am Main: Member of the Executive Board of the ECB Benoit Coeure delivered a speech at the first meeting of the Working Group on Euro Risk-Free Rates, at the ECB.
On behalf of colleagues from the European Commission, the European Securities and Markets Authority, Belgiums Financial Services and Markets Authority and the European Central Bank (ECB), welcome to this first meeting of the Working Group on Euro Risk-Free Rates.
In other words, the yield differential observed at the top of this page was largely accounted for by the difference between the Euro and dollar risk-free rates, which was also the determinant of the cost of (or gain from) currency hedging.
It is not some kind of world average of risk-free rates in various currencies.
The risk-free rates used in the calculation of the Sharpe ratio is the average of the 3-month U.
f] in the abscissa are negative, but one should bear in mind that there are theoretical values obtained in the model, and that in the historical real risk-free rates (i.
Because the ERP is the difference between expected stock returns and the risk-free rate, a high estimate can be the result of expected stock returns being high or risk-free rates being low.
Benchmark administrators should consult on changes to calculations by the end of next year, while regulators should aim to shift derivatives contracts over to the risk-free rates by the first half of 2016.
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.