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Glossary · PSX term

Risk-free rate.

The risk-free rate is the return on an investment considered to have virtually no default risk.

Definition

In Pakistan, short-term government T-bill yields are commonly used as the risk-free rate, serving as a baseline for judging other returns. Investments should ideally offer more to compensate for their added risk.

Worked example

If T-bills yield about 8%, an investor expects more than 8% from riskier PSX stocks to justify the risk.

Related on PSX Clarity

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Treasury bills (T-bills)
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