Economics Risk And Return Questions Medium
The risk-free asset refers to an investment or financial instrument that carries no risk of default or loss of principal. It is considered to have a guaranteed return and is typically used as a benchmark for measuring the risk and return of other investments. The most common example of a risk-free asset is a government-issued bond, particularly those issued by stable and creditworthy countries. These bonds are backed by the full faith and credit of the government, ensuring that the principal and interest payments will be made on time. The risk-free rate of return is often used as a baseline for calculating the expected return of other investments, with riskier assets expected to provide a higher return to compensate for the additional risk.