Some problems in determining the free risk rate of return

Abstract

One of the key factors in investment analysis is the risk free rate of return. The interest rate on a government bond is considered a risk free rate of return, but the bond should be free from the risk of non-payment and reinvestment risk. However, the practical determination of the risk free rate can often be followed by a number of difficulties. Therefore, in this paper we discuss the difficulties faced by an analyst in determining the risk free rate of return on investment and portfolio analysis such as:-Lack of long-term government bonds on the capital market-Exposure to the risk of government default-Change the risk free rate of return over time.