This article needs additional citations for verification. The risk-free interest rate is the rate of return of a hypothetical investment with no risk of financial loss, over a given period of time. Since the risk-free rate can be obtained with no risk, any other investment having perpetuity growth model investopedia forex risk will have to have a higher rate of return in order to induce any investors to hold it.
In practice, to infer the risk-free interest rate in a particular situation, a risk-free bond is usually chosen—that is, one issued by a government or agency whose risks of default are so low as to be negligible. As stated by Malcolm Kemp in Chapter five of his book Market Consistency: Model Calibration in Imperfect Markets, the risk-free rate means different things to different people and there is no consensus on how to go about a direct measurement of it. Expected increases in the money supply should result in investors preferring current consumption to future income. Expected increases in productivity should result in investors preferring future income to current consumption. Tobin makes on page 17 of his book Money, Credit and Capital. However, it is commonly observed that for people applying this interpretation, the value of supplying currency is normally perceived as being positive. Adam Smith in The Wealth of Nations.