What is a 'RiskFree Asset'
A riskfree asset has a certain future return. Treasuries (especially Tbills) are considered to be riskfree because they are backed by the U.S. government. Because they are so safe, the return on riskfree assets is very close to the current interest rate.
Many academics say that there is no such thing as a riskfree asset because all financial assets carry some degree of risk. Technically, this may be correct. However, the level of risk is so small that, for the average investor, it is appropriate to consider U.S. Treasuries or Treasuries from stable Western governments to be riskfree.
BREAKING DOWN 'RiskFree Asset'
While the return on a riskfree asset is known, this does not guarantee a profit in regards to purchasing power. Depending on the length of time until maturity, inflation can cause the asset to lose purchasing power even if the dollar value has risen as predicted.
Understanding Risk
When an investor takes on an investment, there is an anticipated return rate expected depending on the duration the asset is held. The risk is demonstrated by the fact that the actual return and the anticipated return may be very different. Since market fluctuations can be hard to predict, the unknown aspect of the future return is considered to be the risk. Generally, an increased level of risk indicates a higher chance of large fluctuations, which can translate to significant gains or losses depending on the ultimate outcome.
Riskfree investments are considered to be reasonably certain to gain at the level predicted. Since this gain is essentially known, the rate of return is often much lower to reflect the lower amount of risk. The expected return and actual return are likely to be about the same.
Reinvestment Risk
For a longterm investment to continue to be riskfree, any reinvestment necessary must also be riskfree. In this regard, the exact rate of return may not be predictable from the beginning for the entire duration of the investment.
For example, if a person invests in sixmonth Treasury bills, the rate or return on the initial Treasury bill that was purchased may not be equal to the rate on the next Treasury bill purchased as part of the sixmonth reinvestment process. In that regard, there is some risk over the long term, since the rates may change between each instance of reinvestment, but the risk of achieving each specified returned rate for the six months covering a particular Treasury bill's growth is essentially guaranteed.

RiskFree Return
The theoretical rate of return attributed to an investment with ... 
RiskFree Rate Of Return
The theoretical rate of return of an investment with zero risk. ... 
Capital Allocation Line  CAL
A line created in a graph of all possible combinations of risky ... 
Market Risk Premium
The difference between the expected return on a market portfolio ... 
RiskNeutral Measures
A theoretical measure of probability derived from the assumption ... 
Federally Guaranteed Obligations
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Investing
RiskFree Rate of Return
The riskfree rate of return is the theoretical rate of return of an investment with zero risk. The riskfree rate represents the interest an investor would expect from an absolutely riskfree ... 
Investing
How Risk Free Is The RiskFree Rate Of Return?
This rate is rarely questioned  unless the economy falls into disarray. 
Investing
Understanding Market Risk Premium
Market risk premium is equal to the expected return on an investment minus the riskfree rate. The riskfree rate is the minimum rate investors could expect to receive on an investment if it ... 
Financial Advisor
RiskFree & 20% Return? More Like 100% Scam
An investment that promises a riskfree return of 20% is 100% likely to be a scam. 
Investing
How to Calculate Risk Premium
Think of a risk premium as a form of hazard pay for risky investments. 
Investing
Understanding The Sharpe Ratio
This simple ratio will tell you how much that extra return is really worth. 
Investing
Calculating the Equity Risk Premium
Equity risk premium is the excess expected return of a stock, or the stock market as a whole, over the riskfree rate. 
Investing
What Investors Should Know About Interest Rates
Understanding interest rates helps you answer the fundamental question of where to put your money. 
Investing
More Ways to Evaluate Portfolio Performance
The Jensen measure is another tool investors use to include risk when measuring portfolio performance. 
Investing
Understanding Treasury Yield
Treasury yield refers to the return on an investment in a U.S. government debt obligation, such as a bill, note or bond.

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