Week 7 DQ Essay Example | Topics and Well Written Essays - 250 words

Week 7 DQ - Essay Example ‘Risk free rate of interest is the rate of interest on a debt instrument with no default, maturity or liquidity risk.’ (Melicher & Norton, 2011) By definition the portfolio of government bond has liquidity and interest rate risk due to the length of its maturity period but for long-term investments the Treasury bond reflects as a more logical default free holding period return for longer term investments. Treasury bill is the closet example of the riskless securities as they hold zero or very minimal liquidity and maturity risk. The $250,000 portfolio of Treasury bills is more risk free as compared to the Treasury bind portfolio of 30 years maturity. However, government these days have also defaulted in various parts of the world therefore, there is no complete risk free security in the practical sense. Securities other than the government bonds and treasury bills that are close to the riskless concept are the fixed accounts, certificates of deposits, inflation protected securities and indexed bonds