Risk-Free Rate Of Return
The theoretical rate of return of an investment with zero risk. The risk-free rate represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time. Investopedia Says:
In theory, the risk-free rate is the minimum return an investor expects for any investment because he or she will not accept additional risk unless the potential rate of return is greater than the risk-free rate.
In practice, however, the risk-free rate does not exist because even the safest investments carry a very small amount of risk. Thus, the interest rate on a three-month U.S. Treasury bill is often used as the risk-free rate. Related Terms:
Equity Premium Puzzle - EPP
Equity Risk Premium
Government Security
Risk-Adjusted Return
Risk-Free Asset
Risk-Return Trade-off
Treasury Bill - T-Bill |