• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Required Return (Overall Risk Control)

G

Gareth

Member
Can anyone clarify what "required risk free real rate of return" means in the definition of required return?

I thought there is only one definition of risk free rate, not a "required" risk free rate - or is this referring to LIBOR net of inflation vs. real risk free on ILG's?
 
In the definition of required return, "required risk-free real rate of return" will normally just mean the real yield on an index-linked government bond of the appropriate term (as suggested on page 4 of Chapter 17).

So, the inclusion of the word "required" isn't strictly necessary here, as the Core Reading could equally just call this the "risk-free real rate of return" - without including the word required. However, it is "required" in the sense that no investor would want to receive any less than the real risk-free rate on index-linked government bonds, for example by investing in non-risk-free (corporate) index-linked bonds.
 
Back
Top