risk-free rate


Also found in: Acronyms.

Risk-free rate

The rate earned on a riskless asset.

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 rate

An interest rate on the safest investments, which would generally be short-term federal government obligations or savings accounts in amounts less than the FDIC insurance limits.
References in periodicals archive ?
The first thing to notice in the time series is that there are large declines in the risk-free rate and large increases in the risk premiums associated with crises, most notably the Great Recession and the Great Depression.
15) The target rate used to calculate semivariance is the same average risk-free rate described in footnote 1 above.
They considered the risk premium for a developed market and recommended taking the cost of debt in local currency, adding the "systematic part of the credit spread," which relates to the credit risk of the issuer with respect to the risk-free rate in U.
Mehra and Prescott found that the mean value of the risk-free rate in the period under consideration was 0.
Table 1: Common valuation issues in valuing an early-stage biotechnology firm through DCF R&D Period Explanation Beta and Discount Rate Through the Capital Asset Pricing Model Calculation through (CAPM) one can calculate beta by using the CAPM Model comparable companies and the discount rate using the risk-free rate and the market risk premium.
Sharpe (1966), Lintner (1965), and Mossin (1966) showed that an investor can move to better risk-return combinations by borrowing and lending at the risk-free rate.
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.
In Table 4, we report the user cost estimates taking the risk-free rate (first panel) and the market return (second panel) as the benchmark rates.
The CAPM is a single-period model, according to the reports for the risk-free rate, the return and the beta aspect, which all seem to create difficulties in practice.
t - 1]) denote the risk-free rate between periods t - 1 and t given the aggregate history [z.
Option Adjusted Spread (OAS) refers to a measurement of the spread of a fixed-income security asset and the risk-free rate of return, which is adjusted to take into account an embedded option.
RCA reports that lenders are getting a healthy risk premium in the present market, with long-term fixed rate mortgages 160 bps above the risk-free rate.