Myles
@myles-cooks
Every time I hear the term "risk-free rate" it drives me crazy. That is an insane term. Can't believe we've let it spread this far.
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franco
@francos.eth
Why? In what context? It’s a theoretical benchmark, in reality no investment is entirely risk free.
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Myles
@myles-cooks
"in reality no investment is entirely risk free." My point exactly..
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franco
@francos.eth
It’s literally a theoretical benchmark useful for a lot of things: - minimum threshold for investment returns - assessing the risk premium of other investments - calculating present value of future cash flows (like in DCF models) - foundation of CAPM equation - used in black-scholes and other option pricing models - sharpe ratio calculation - WACC calculation - bond valuations - VaR calculations I could go on…
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Myles
@myles-cooks
I understand it's widely used, and I see what you're saying. But I just think it's an odd term because it doesn't describe reality. It's a semantics issue. But I understand nothing about my complaints will change things so I am simply screaming into the void.
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franco
@francos.eth
Yeah, I guess it depends on the way you use it. If it's used outside of theoretical calculations it's probably a scam. If someone ever offers a risk-free rate, it's a scam. US treasury bonds interest rates are commonly used as proxies for risk-free rates and we know that's BS.
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