Question

1. What is generally used as a proxy for the expected return on the riskless asset?

Answer 1

Treasury bill is generally used as a proxy for the expected return on the riskless asset.

Risk free rate of return is the expected return on the riskless asset. A risk free rate of return means there would be return on an investment with without any risk. As treasury bills are backed by the government there are no chances of default and thus it ensures no risk while providing return at the same time. As risk free rates does not exist in reality proxy such as the treasury bill provides a measure of expected return on the riskless asset.