Encyclopedia > Risk-free interest rate

  Article Content

Risk-free interest rate

The risk-free interest rate is the interest rate that it is assumed can be obtained by investing in financial instruments with no risk.

Examples of risk-free investment are long dated United States Government bonds. They are considered to be risk-free because the likelihood of the Government defaulting is extremely low.

The risk-free interest rate is of significant importance to financial calculations such as use of the Black-Scholes formula for pricing stock options. Since this interest rate can be obtained with no risk, it is implied that any additional risk taken by an investor should be rewarded with an interest rate higher than the risk free rate.



All Wikipedia text is available under the terms of the GNU Free Documentation License

 
  Search Encyclopedia

Search over one million articles, find something about almost anything!
 
 
  
  Featured Article
Charles V, Holy Roman Emperor

... allied himself with Suleiman against Charles. While Francis was persuaded to sign a peace treaty in 1538, he again allied himself with the Ottomans in 1542. In 1543 Charles ...

 
 
 
This page was created in 47.7 ms