![]() Therefore, it’s a reasonable starting point to take the midpoint of that range and assume that the risk-free rate of return is 1.25%. Treasury yields over the same maturity dates (as of May 16, 2016), which range from 0.94% (3-year Treasuries) to 1.55% (7-year Treasuries). Given that real estate is commonly held for periods that can range from three to seven years, we can look to current U.S. To put the risk-free rate of return into the perspective of real estate, it’s helpful to align around holding periods. would need to default on its debt obligations for the investor to not be paid the promised rate of return. In the real world, there is no such thing as zero risk, but the closest we get to it is U.S. The first step for investors is to begin with the base concept of risk-free return, which is the theoretical rate of return for zero risk. However, the concept is still applied to real estate investment returns. ![]() Real estate doesn’t offer the same technical analytical approach to measuring risk as can be done in securities analysis. ![]() ![]() Risk-adjusted return on Capital (RAROC) = Expected Return / Value at Risk It is a common term in the investment world, particularly as it relates to discussing returns on equities and fixed income that is derived utilizing the following equation: A risk-adjusted return is a measure that puts returns into context based on the amount of risk involved in an investment. ![]()
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