Risk-free asset

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Risk-free asset

An asset whose future normal return is known today with certainty.

Risk-Free Asset

An asset in which the return is known with certainty. The certainty generally comes from a supreme amount of confidence in the issuer of the asset; for example, Treasury securities are considered risk-free because the United States government is considered the best possible issuer. Critics contend that there is no such thing as a risk-free asset because, in theory, even the US government could default. However, risk-free assets have such a low level of risk that it may be ignored. Nonetheless, risk-free assets usually have a low rate of return, and, as a result, even these are exposed to inflation risk.
References in periodicals archive ?
R is the low risk return rate: it is the return rate of a riskless asset whose emitter is characterized by a higher level of solvency (example, Sovereign Sukuk Ijara (8)).
Participants will trade two assets, a one-period riskless asset and a long-lived stock, in an environment consistent with the existence of asset price bubbles in equilibrium.
For long-horizon investors, long-term inflation-indexed bonds are the riskless asset.
Another riskless asset is a loan to a sovereign government.
it] is the excess return of asset i over the riskless asset return in time period t, [[alpha].
Rather, we assume an incomplete market structure in which the riskless asset is the only vehicle for saving and wealth accumulation, as in the classic models of optimal consumption and saving decisions.
t] represents the position of risk asset and riskless asset held in the portfolio, then the wealth process V = [[theta].
n+1] which consist of a riskless asset and n risky assets, traded upon continuously.
As an example, he finds that even investors with strong prior beliefs in the reliability of the CAPM would hold large and stable positions in the Fama-French book-to-market portfolio, rather than investing exclusively in the market portfolio and a riskless asset.
The common ground about all these portfolios lies in the fact that they fulfill the Separation Theorem which states, as Elton and Gruber (1997) remarked, that " if an investor has access to a riskless asset, the choice of the optimum portfolio of risky assets is unequivocal and independent of the investor's taste for expected return or variance".
t]) = 1, and the riskless asset is in zero net supply, [B.