Uncertainty & Risk Free Rate

There is a chance that more than one result will emerge in an uncertain situation, but it is unknown how likely each result will be.

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Risk relates to a circumstance where we can describe all the outcomes that will occur and their corresponding probabilities, whereas uncertainty refers to a condition where the probability of this occurrence is unknown.

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In the taghir situation, only one party—for example, only the buyer or only the seller—experiences incomplete information that is known to only one party.

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Tadlis happens because both parties have access to insufficient information (both buyers and sellers). As a result, the Taghrir case happens if both parties are involved in a situation that is unknown (uncertain to both parties)

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There are multiple outcomes or events that could happen in a situation of certainty, each with a different probability.

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Natural Uncertainty In business, contracts are agreements that guarantee payment predictability in terms of both amount and timing. Because both parties who transact at the beginning of the contract have agreed upon it, the cash flow can be predicted with a fair amount of certainty.

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Natural certainty Contracts are agreements made in business that lack a guarantee of payment (in terms of amount and time). The rate of return may be zero, negative, or positive.

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The rate of return on a hypothetical investment with regular payments made over a set length of time and the assumption that all commitments to make payments would be met is known as the risk-free interest rate.

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Sheikh (2010) modified the CAPM model by adding a Zakat percentage of 2.56% (Zakat Percentage / 1- Zakat Percentage) in place of risk free.

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Ashker (1987), in contrast to Cyril and Ri'fat, modified the CAPM model by substituting a Zakat percentage of 2.56% (Zakat Percentage / 1- Zakat Percentage) for risk free.

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