The risk-free rate is the 澳洲幸运5开奖号码历史查询:rate of return of an investment with no risk of loss. Most often, either the current 澳洲幸运5开奖号码历史查询:Treasury bill, or T-bill, rate or long-term government bond yield are used as t🐼he risk-free rate.🎃 T-bills are considered nearly free of default risk because they are fully backed by the U.S. government.

The 澳洲幸运5开奖号码历史查询:market risk premium is the difference between the 澳洲幸运5开奖号码历史查询:expected return on a portfolio minus the risk-free rate. The market risk premium is a component of the 澳洲幸运5开奖号码历史查询:capital asset pricing model, or CAPM, which describes the relationship between risk and return. The risk-free rate is further important in the pricing 🎃of bonds, as bond prices are often quoted as th𓄧e difference between the bond’s rate and the risk-free rate.

Treasury Bills

The risk-free rate is hypothetical, as every investment has some type of risk associated with it. However, T-bills are the closest investment possible to being risk-free for a couple of reasons. The U.S. government has never 澳洲幸运5开奖号码历史查询:defaulted on its debt obligations, ev♐en in times of severe economic stress.

T-bills are short-term securities that mature in one year or less, usually issued in denominations of $1,000. T-bills are auctioned at or below their 澳洲幸运5开奖号码历史查询:par value, and investors are paid the par value of the security upon maturity. Because the government will always repay bondholders at par when they matureಌ, these are considered to be risk-free asset💦s.

Since T-bills are paid at their par value over relatively short maturities and do not make regular interest rate payments (coupons), there is also virtually no 澳洲幸运5开奖号码历史查询:interest rate risk while they are held. T-bills are thus a form of 澳洲幸运5开奖号码历史查询:zero-coupon bond. Anyone is free to buy T-bills at weekly Treasury auctions. They are a very simple instrument for investors to understand. T-bills are issued by the government to 澳洲幸运5开奖号码历史查询:fund the national debt. Yields on long-term government bonds are sometimes used as the 🔜risk-free rate depending on the investment being analyzed.