Investment Term for the Day : Risk-Free Rate
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Description
The risk-free rate of return is the theoretical rate of return of an investment with zero risks. The risk-free rate represents the interest an investor would expect from an absolutely...
show moreIn theory, the risk-free rate is the minimum return an investor expects for any investment because he will not accept additional risk unless the potential rate of return is greater than the risk-free rate.
In practice, however, a truly risk-free rate does not exist because even the safest investments carry a very small amount of risk. Thus, the interest rate on a three-month U.S. Treasury bill is often used as the risk-free rate for U.S.-based investors.
Determination of a proxy for the risk-free rate of return for a given situation must consider the investor's home market, while negative interest rates can complicate the issue.
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Author | Africa Business Radio |
Organization | Africa Business Radio |
Website | - |
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