It began with a handful of academics, notably William Sharpe. Sharpe won the Nobel Memorial Prize in Economic Sciences in 1990, based on his research on Capital Asset Pricing Model (CAPM). The CAPM attempts to explain the expected returns of a security (stock, bond, etc). I will avoid the technicalities as much as possible and make it comprehensible for the layman. I wanted to share this because it could have a significant impact to your investment strategy. So be sure to read on. First, we know that most, if not all, governments issue debts. For example, the Singapore Government issue bonds of varying maturity dates. These bonds pay out a coupon rates to bondholders and are deemed as the least risky asset in the entire country. Typically, the government’s 10 year bond interest rate is used as a indication of the risk-free rate for the country. The significance of the risk-free rate ......