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 ?
Oil will remain in tanks only as long as the market is in steep contango, affording holders the risk-free returns they can achieve by selling futures at a higher price than their cost.
Small savings schemes are popular among retail investors as they offer risk-free returns and tax benefits.
Local banks remained profitable since the government emerged as the sole client providing risk-free returns despite global financial crisis began in 2007 that inflicted the banking of the entire world.
He set up the investment sham in Majorca in 2001, duping people into handing over their pensions and savings with the lure of fast, risk-free returns, while he spent much of their money on his high-rolling.
83) The overarching point of this line of literature is that the income tax only reaches risk-free returns to capital and nothing more.
Given the difference in cost of capital between large buyers and small suppliers, such acceleration is of mutual benefit: The suppliers receive payment earlier, while large buying organizations benefit from double-digit risk-free returns through additional discounts.
Meanwhile, just 6% take a conservative approach and seek stable, risk-free returns.
But he quickly caught up with the electronic age, opening a website called All The Way To The Top, which promised risk-free returns of 50 per cent per month for three years through an investment in "smart card" technology.
These assets guarantee liquidity and provide risk-free returns, compared with bonds and equities and may become more attractive as investment homes.
For the few holidays each year that banks were closed but stock markets were open, we estimated risk-free returns using the mean of the "asked" treasury bill discount for the day preceding the holiday and the day following the holiday.
The empirical difficulty is that, unlike other components of M2+ which have nearly risk-free returns, stock and bond funds have high rate-of-return volatility.
RISK: To calculate risk, monthly/weekly returns were compared with monthly riskfree returns for equity and hybrid funds; for debt funds, weekly risk-free returns were considered.