Risk free rate of return: Difference between revisions
imported>Doug Williamson m (Added internal reference to Capital asset pricing model.) |
imported>Doug Williamson (Expand for interest rate benchmarks.) |
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The theoretical rate of | The theoretical rate of investment returns which can be earned on hypothetical investments which are considered to be risk-free for modelling purposes. | ||
The Capital asset pricing model (CAPM) incorporates this type of risk free rate. | |||
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In the modern era, domestic central government debt is no longer considered to be risk-free for this purpose, nor for a number of other purposes for which it was historically considered to be risk-free. | In the modern era, domestic central government debt is no longer considered to be risk-free for this purpose, nor for a number of other purposes for which it was historically considered to be risk-free. | ||
====Interest rate benchmarks==== | |||
The term 'risk-free rates' (RFRs) is also used in the context of interest rate benchmark rates. | |||
For example, risk-free rates that might be used as alternatives to LIBOR. | |||
== See also == | == See also == | ||
* [[Benchmark]] | |||
* [[Capital asset pricing model]] | * [[Capital asset pricing model]] | ||
* [[Credit spread ]] | * [[Credit spread ]] | ||
* [[Gilts]] | * [[Gilts]] | ||
* [[Interest rate risk]] | * [[Interest rate risk]] | ||
* [[LIBOR]] | |||
* [[Risk-free rates]] | |||
Revision as of 09:42, 4 February 2018
The theoretical rate of investment returns which can be earned on hypothetical investments which are considered to be risk-free for modelling purposes.
The Capital asset pricing model (CAPM) incorporates this type of risk free rate.
Historically, the rates of return on certain types of domestic central government debt were considered to be a close enough proxy for such hypothetical risk-free investments.
In the modern era, domestic central government debt is no longer considered to be risk-free for this purpose, nor for a number of other purposes for which it was historically considered to be risk-free.
Interest rate benchmarks
The term 'risk-free rates' (RFRs) is also used in the context of interest rate benchmark rates.
For example, risk-free rates that might be used as alternatives to LIBOR.
