The risk-free rate is the 澳洲幸运5官方开奖结果体彩网:rate of return of an investment with no risk of loss. Most often, either the current 澳洲幸运5官方开奖结果体彩网:Treasury bill, or T-bill, rate or♛ long-term government bond yield are used as the 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官方开奖结果体彩网:market risk premium is the difference between the 澳洲幸运5官方开奖结果体彩网:expected return on a portfolio minus the risk-free rate. The market risk premium is a component of the 澳洲幸运5官方开奖结果体彩网: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 quoted൩ as the difference between the bond’s rate and the risk-free ra🦩te.

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官方开奖结果体彩网:defaulted on its debt obligation📖s, even in times of severe ecܫonomic 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官方开奖结果体彩网:par value, and investors are paid the par value of the security upon maturity. Because the go🌸vernment will always repay bondholders at par when they mature, these are considered to be risk-free assets.

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官方开奖结果体彩网:interest rate risk while they are held. T-bills are thus a form of 澳洲幸运5官方开奖结果体彩网: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官方开奖结果体彩网:fund the national debt. Yields on l⛦ong-term government bonds are sometimes used as the risk-free rate depending on the investment being analyz꧑ed.