risk-free return

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 ?
I would characterise as deluded those who expect a substantial risk-free return.
An 8% inflation-adjusted, risk-free return is unheard of in today's investing environment.
It might be that Hammerson is enjoying a risk-free return from the few tenants currently inhabiting the site - but the opportunity must be greater.
Since government securities yield a healthy risk-free return, banks continue to prefer financing government's deficit through investment in fixed income securities.
In some cases, the risk-free return for such a transaction financed with borrowed money can exceed 10 percent after deducting loan and storage costs.
This paper exploits that relationship to jointly identify the unobserved risk-free return and risk premium components of exchange rates and expected relative returns.
5% yield on German bonds is more likely to be a return-free risk than the risk-free return that many currently assume.
The prohibition of a risk-free return and permission to trade, as enshrined in verse 2: 275 of the Holy Qur'an, makes the financial activities in an Islamic set-up real asset-backed with the ability to cause 'value addition'.
In short, the return on a risky investment may be decomposed into pieces of "embedded" risk and return: the risk-free return and the expected return to risk bearing.
Considering that investors (creditors) have several options for investing their capital, they will opt for the investment type offering a risk premium, the rate of return in excess of a risk-free return rate.
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