riskless investment

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Riskless Investment

An investment where the return is known with certainty. The certainty generally comes from a supreme amount of confidence in the issuer of the investment; for example, Treasury securities are considered riskless investments because the United States government is considered the best possible issuer. Critics contend that there is no such thing as a riskless investment because, in theory, even the US government could default. However, riskless investments have such a low level of risk that it may be ignored. Riskless investments usually have a low rate of return and, as a result, are exposed to inflation risk.

riskless investment

An investment with a certain rate of return and no chance of default. Although various investments (for example, savings accounts and certificates of deposit at insured institutions) meet these requirements, a Treasury bill is the most common example of a riskless investment.
References in periodicals archive ?
"The certificates are Pakistan's first-of-its-kind, risk-free security to chanellise instruments from overseas Pakistanis, and a third party will manage the operational aspects of the certificates."
The inclusion of risk-free security' (short term government securities) in a portfolio opens for better risk-return opportunities as compared to the efficient frontier.
According to the WBF model, the implicit revenue from screening and monitoring services should equal the spread of the gross loan interest rate over the yield on an equally risky fixed-income security, not a risk-free security such as a Treasury bill or bond.
In some versions of the model that security-specific multiple (known as 'beta', the return relative to the market return) is treated as an index of the riskiness of the security, so that it essentially measures the margin of risk offered by the security (and hence the excessive return) over the return from a risk-free security. In finance theory, the Capital Asset Pricing Model came to be associated with the 'efficient markets hypothesis' or the view that prices in securities markets reflect all the publicly known information relevant to the evaluation of each security.
A theoretical paper by Cvitanic, Lazrak, Martellini, and Zapatero [36] consider the problem of an investor who can choose between the risk-free security and two risky securities: a passive fund that tracks the market and a hedge fund.
Regarding the debate over whether private debt can fulfil all the desirable functions of public debt, some argue that comorate securities (even when they are government-sponsored) cannot achieve the same risk status as government debt and therefore cannot function in a satisfactory way as a substitute benchmark for a risk-free security. This in turn may affect the pricing of private assets and the development of corporate security markets.