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Topic: Risk free interest rate


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  Kids.Net.Au - Encyclopedia > Risk-free interest rate   (Site not responding. Last check: 2007-10-16)
The risk-free interest rate is the interest rate that it is assumed can be obtained by investing in financial instruments with no risk.
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.
www.kids.net.au /encyclopedia-wiki/ri/Risk-free_interest_rate   (131 words)

  
  Risk-free interest rate - Wikipedia, the free encyclopedia
The risk-free interest rate is the interest rate that it is assumed can be obtained by investing in financial instruments with no risk.
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 (or with preferential tax treatment; some local government US bonds give below the risk free rate).
The risk-free interest rate is thus of significant importance to modern portfolio theory in general, and is an important assumption for rational pricing.
en.wikipedia.org /wiki/Risk-free_interest_rate   (191 words)

  
 Interest - Wikipedia, the free encyclopedia
Interest rates are very closely watched market indicators, and have a dramatic effect on finance and economics.
Interest is then calculated not only over the principal, but also over the interest that has been added to the debt before.
Liquidity risk is the risk that the lender might not be able to liquidate the debt on short notice.
www.wikipedia.org /wiki/Interest   (1266 words)

  
 Interest rate Risk- Models
The modelling of the term structure of interest rates has produced a variety of approaches since the advent of arbitrage-free pricing theory and it continues to occupy the efforts of both academics and practitioners.
Based on the arbitrage-free principle, the market price of risk is removed by the choice of the drift (this occurs in the portfolio replication argument for stock options in Black-Scholes, where the drift is equal to the risk free rate).
For forward rate models, the critical factor in determining the behaviour of a model is the form of the (HJM) volatility function.
www.financewise.com /public/edit/riskm/interestrate/interestraterisk00-models.htm   (3034 words)

  
 * Interest Rate - (Stock Market): Definition
Interest rates are one of the most important factors determining the behaviour of the markets.
Interest Rate Anticipation a style of fixed income investing in which a manager makes investment decisions based on his forecast for the direction of interest rate movements...
Interest Rate Risk: Interest rate risk is a type of investment risk in which changes in interest rates negatively affect the value of an investment portfolio...
en.mimi.hu /stockmarket/interest_rate.html   (1781 words)

  
 Re: risk free interest rate
The interest rate reference to be used should account for the default risk of both counterparties inherent in the transaction.
On the countrary, if the option is a liability for your bank, then the appropriate rate should reflect the possibility that your bank fails to honor the term of the option contract.
The rating of the bank is critical regarding this issue since it directly influences the refinancing condition of the institution.
www.contingencyanalysis.com /archive/archive98-3/000000b2.htm   (389 words)

  
 Bloomberg.com: Financial Glossary
The risk that proceeds received in the future may have to be reinvested at a lower potential interest rate.
The interest rate on the loan is generally fixed during the term of the note, but when the balloon comes due, the lender may refinance it at a higher rate.
Bonds that allow the initial interest rates to be adjusted on specific dates in order that the bondstrade at the value they had when they were issued.
www.bloomberg.com /analysis/glossary/bfglosr.htm   (6817 words)

  
 SCMP.com - Glossary of Financial and Business Terms   (Site not responding. Last check: 2007-10-16)
The rate of interest excluding the effect of expected inflation; that is, the rate that is earned in terms of constant-purchasing-power dollars.
Bonds which allow the initial interest rates to be adjusted on specific dates in order that the bonds trade at the value they had when they were issued.
The risk free asset is commonly defined as short-term obligations of the U.S. government.
special.scmp.com /glossary/bfglosr.html   (7574 words)

  
 Risk-free interest rate - an introduction - Citizendium
The risk-free interest rate is the interest rate that one can be obtained by investing in financial instruments bearing no risk.
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 (or with preferential tax treatment; some local government US bonds give below the risk-free rate).
The risk-free interest rate is thus of significant importance to modern portfolio theory in general, and is an important assumption for rational pricing.
en.citizendium.org /wiki/Risk-free_interest_rate   (390 words)

  
 Spartanburg SC | GoUpstate.com | Spartanburg Herald-Journal   (Site not responding. Last check: 2007-10-16)
The risk-free interest rate is the interest rate that it is assumed can be obtained by investing in financial instruments with no default risk.
The mean real interest rate of US treasury bills during the 20th century was 0.9% p.a.
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 (on an after-tax basis, which may be achieved with preferential tax treatment; some local government US bonds give below the risk-free rate).
www.goupstate.com /apps/pbcs.dll/section?category=NEWS&template=wiki&text=risk-free_interest_rate   (479 words)

  
 Campbell R. Harvey's Hypertextual Finance Glossary   (Site not responding. Last check: 2007-10-16)
In banking, the risk that profits may drop or losses occur because a rise in interest rates forces up the cost of funding fixed-rate loans or other fixed-rate assets.
Yield assuming that coupon payments are invested at the going market interest rate at the time of their receipt and held thus until the bond matures.
Bonds that allow the initial interest rates to be adjusted on specific dates in order that the bonds trade at the value they had when they were issued.
www.duke.edu /~charvey/Classes/wpg/bfglosr.htm   (8527 words)

  
 Dividends, Interest Rates and Their Effect on Stock Options
When interest rates are steadily falling to a point where the Fed Funds' target is down to around 1.0% and short-term interest rates available to individuals are around 0.75% to 2.0% (like in late 2003), interest rates have a minimal effect on option prices.
Interest rates are the critical factor in determining whether to exercise a put option early.
Although interest rates and dividends are not the primary factors affecting an option's price, the option trader should still be aware of their effects.
www.investopedia.com /articles/optioninvestor/03/121003.asp   (1477 words)

  
 Treasury Bonds, Notes & Bills- Interest Rate Futures and Commodity option trading
Managing interest rate risk is a very necessary component of most investors long term investment portfolio strategies.
Interest rate futures were pioneered by the Chicago Board of Trade (CBOT) in 1975 in response to a growing market need for tools that could protect against sharp and frequent swings in the cost of money.
These prices are global interest rate barometers, reflecting moves in national and international rates, and are available to the public immediately.
www.tkfutures.com /notes.htm   (1041 words)

  
 Arbitrage-free Binomial Interest Rate Model
The model assumes that the one-period interest rate volatility is constant over time and, as a result, the model cannot accept a term structure of volatilities.
This establishes the relationship of the simulated interest rates to the term structure of interest rates and volatilities.
Since the strengths of the arbitrage-free interest rate model is to enable us to relative value other securities to the term structure of interest rates, we need to take these risks into account, beyond the fundamental time value of money concept.
www.thomasho.com /analy_sol/documents/interest_rate_owen.htm   (3942 words)

  
 Risk-free interest rate
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.
The text of this article is licensed under the GFDL.
www.ebroadcast.com.au /lookup/encyclopedia/ri/Risk-free_interest_rate.html   (126 words)

  
 Best free interest downloads. The Interest Calculator can calculate virtually all types of interest. Free loan interest ...
Free loan interest checker to audit the interest charges on your loans.
Interest software: Free interest checker to audit your loans, Free interest checker to audit your loans, Free interest checker to audit your loans and more.
You are inputting the sum of a loan, a bank's interest rate, and monthly payment, which you are going to pay, and a program computes the total time of payment, overpayment and the overall sum.
www.freedownloadmanager.org /downloads/interest_software   (732 words)

  
 On the Relationship Betweem the Market Risk Premium and the Risk-Free Interest Rate
The lack of integratedness between the risk premium and the risk free rate has implications on the construction of the equity risk premium used in the determination of the required rate of return.
The objective of this paper is to explore the relationship between the equity risk premium and the risk free rate.
In contrast, all the measures of the market risk premium are stationary in their levels at the 5 percent level of significance with the exception of Spone, which is linear trend stationary at the 10 percent level.
www.westga.edu /~bquest/2004/relationship.htm   (2930 words)

  
 Real Rates and Gold 2
Because market interest rates are unfortunately pegged to nominal rather than real interest rates, in low interest rate environments the savers can’t get a fair deal so they simply pick up their toys and move to another sandbox.
Interest rates should be dynamically set in the marketplace by supply and demand forces, the free market, not by decree in smoky backrooms full of private, unelected, and unaccountable central bankers.
The reported inflation rate, computed and presented by unelected lifetime bureaucrats at the BLS who exist solely to please their political masters, conveniently dropped just in time for Greenspan to continue his assault on savers via artificially-low interest rates.
www.zealllc.com /2002/realgold2.htm   (2990 words)

  
 Risk-free interest rate - Encyclopedia, History, Geography and Biography   (Site not responding. Last check: 2007-10-16)
Those securities are considered to be risk-free because the likelihood of the government defaulting is extremely low, and because the short maturity of the bill protects the investor from interest-rate risk that is present in all fixed-rate bonds.
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.
This page was last modified 03:40, 15 Jun 2005.
www.arikah.com /encyclopedia/Risk_free_rate   (228 words)

  
 Money | The no-risk, tax-free high-interest savings
At the moment they are offering some of the best rates on the high street, paying 4 per cent or more on deposits of as little as £1.
Interest rates currently range from 2.7 per cent at HSBC (for £1 deposits) to 4.65 per cent at Northern Rock, although some of the best rates are boosted by short term bonuses.
However, you know if you opt for a fixed account that you are locked in at that rate.' Bowes points out that some experts are expecting interest rates to be cut by the Bank of England soon, so a fixed-rate account could prove particularly favourable.
money.guardian.co.uk /print/0,3858,4553159-102272,00.html   (513 words)

  
 Home Equity Loans, Home Loans, Mortgage Refinancing : LendingExpo Mortgage Loans Quotes
Those refinancing in the past few years have taken advantage of low rates to switch from a variable rate of interest to a lower fixed rate of interest.
Rates are beginning to make a rise, but improvements in your credit may still mean refinancing is worth while.
Graduates this year can undoubtedly find lower interest rates on their student loans, refinancing is the means to take advantage of them.
www.lendingexpo.net   (1639 words)

  
 Information on J&E Models   (Site not responding. Last check: 2007-10-16)
The risk-free interest rate is fixed over the life of the option.
Assigning one risk-free interest rate over the life of the option is a distortion of the typical market conditions; the yield curve is typically not flat.
The reason is as follows; if you were to replicate a call option using a portfolio of a stock and risk free bond, the Black Scholes model assumes that you finance the stock purchase at the risk free rate.
www.jeresearch.com /Opti-Calc/Models.htm   (1786 words)

  
 Glossary: Risk-Free Rate   (Site not responding. Last check: 2007-10-16)
he risk-free rate is a theoretical interest rate at which an investment may earn interest without incurring any risk.
The notion is used extensively in option pricing theory where derivatives are valued with a risk neutral assumption under which all assets may be assumed to have expected returns equal to the risk-free rate.
In practice, the risk-free rate is often assumed to be a short-term Treasury rate.
www.riskglossary.com /articles_old/glossaryriskfreerate.htm   (80 words)

  
 BLACK-SCHOLES EQUATION
Thus V is independent of the random variable dz; i.e., is is a risk free portfolio.
Since the value of the portfolio is independent of the random variable it should increase in value at the same rate as the risk free interest rate; i.e.,
There exists a risk-free interest rate which is constant over the life of the option.
www.sjsu.edu /faculty/watkins/blacksch.htm   (460 words)

  
 Boom and Bust - Mises Institute
When the central bank artificially lowers the rate of interest, entrepreneurs make their plans believing that consumers are willing to delay consumption and save more than they really are.
The natural rate of interest, or that rate that would exist on the unhampered market, measures consumers' time preference because it reflects what borrowers must pay lenders to persuade the lenders to delay their own consumption.
If I demand a rate of interest of at least 5%, this means that a $105 dinner next year is marginally more valuable to me than a $100 dinner this year.
www.mises.org /fullstory.asp?control=485&FS=Boom+and+Bust+   (2206 words)

  
 The Equity Premium and the Risk Free Rate   (Site not responding. Last check: 2007-10-16)
This paper investigates the ability of a representative agent model with time separable utility to explain the mean vector and the covariance matrix of the risk-free interest rate and the return to equity.
We generalize the standard calibration methodology by accounting for the uncertainty in both the sample moments to be explained and the estimated parameters to which the model is calibrated, and then develop a testing framework to evaluate the model's ability to match the moments of the data.
We study a model in which dividends explicitly represent the flow that accrues to the owner of the equity, and they are discounted by the intertemporal marginal rate of substitution defined over consumption.
people.brandeis.edu /~cecchett/equity.htm   (193 words)

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