T-bills provide a perfectly risk-free asset in nominal terms only. Nevertheless, the standard deviation of real returns on short-term T-bills is small compared to that of other assets such as long-term bonds and common stocks, so for the purpose of our analysis we consider T-bills as the risk-free asset. Money market funds hold, in addition to T-bills, short-term relatively safe obligations such as repurchase agreements or bank CDs. These entail some default risk, but again, the additional risk is small relative to most other risky assets. For convenience, we often refer to money market funds as risk-free assets. p-936