Definition for : Risk-free assets

By definition, Risk-free Assets are those that offer a certain Return, i.e. the Risk-free rate (rF). These Assets are free of the Default risk of the issuer and of the Coupon reinvestment risk. This is the case with a government Bond, assuming of course that the government does not go bankrupt (see Bankruptcy). The Standard deviation and Variance of its Return are thus zero.

(See Chapter 18 Risk and return of the Vernimmen)

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