Risk-free interest rate
The risk-free interest rate or the risk-free interest rate is an interest rate that is paid by a debtor in a market for an investment where there is generally no risk that the loan interest and repayment cannot be made on time (= there is no risk of default ).
It is therefore an important reference point for comparison with risky investments (see credit spread ) and represents a lower return limit for interest-bearing investments. The risk of an interest-bearing investment is often indicated by the difference between its return and the risk-free interest rate. In general, the difference between the actual return on a risky investment and the risk-free interest rate is referred to as the investment's excess return .
While the term “risk-free interest” is a fixed term in financial market theory and part of many common capital market models (e.g. CAPM ), there are no fixed rules as to how it is to be determined, and it is not officially established as such.
In practice, you have to individually determine the appropriate risk-free interest rate for each situation under consideration. On the one hand, all interest rates always apply to a certain currency, on the other hand, you have to consider the relevant investment period. Normally, an interest rate determined on the money market or capital market is used as the interest rate, in this case the interest rate that the most solvent borrower has to pay in a certain currency for a certain term . It is assumed that the term of the interest rate used as a reference corresponds almost exactly to the term desired for the risk-free investment and that the selected reference investment is sufficiently traded.
For these reasons, returns on government bonds or flawless bank investments are usually used as a risk-free interest rate. For long-term investments in the euro, the yields on German government bonds of the same duration are normally used. The Federal Republic of Germany is one of the safest borrowers in the euro area and federal bonds have the highest trading volume there. For investments with a term of up to one year, either the yields of shorter-dated federal securities or interbank interest rates that are publicly determined every trading day are used, e.g. B. the EURIBOR . English-language specialist literature generally names the US government's 3-month treasury bond, as it is guaranteed directly by the US government and, thanks to its short term, is hardly changed by inflation or changes in interest rates.
Individual evidence
- ↑ Bernd R. Fischer, Performance Analysis in Practice , 3rd Edition, Oldenbourg, Munich, 2009, p. 440 (footnote)
- ↑ Peter Steiner, Wertpapieranalyse , 4th edition, Physica, Heidelberg, 2001, p. 155 f.
- ^ John Downes and Jordan Elliot Goodman, Dictionary of Finance and Investment Terms , 4th ed; Barron's Educational Series, Hauppauge, NY, 1995, ISBN 0-8120-9035-7