Similarly, the rate of return on risk-free assets also can be easily evaluated.
We assume the absence of a risk-free asset, implying that individuals have to bear all risk inherent in their risky capital.
It is assumed that transactions in risk-free bonds do not incur transaction costs; alternatively, k can be regarded as representing both sets of costs.
There is also a risk-free asset with a fixed interest rate.
The model produces reasonable volatilities for both the risk-free and risky rates but fails to produce a sizeable equity premium.
In this risk-free world, several predictions can be made concerning how workers would choose which plan to enroll in.
The model allows for agents to put funds in a risk-free asset which is available in infinite supply.
Because there is no intertemporal consumption decision, the payoff and the price of the risk-free asset are normalized to one.
