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DEFINITION of 'RiskFree Rate Of Return'
The theoretical rate of return of an investment with zero risk. The riskfree rate represents the interest an investor would expect from an absolutely riskfree investment over a specified period of time.
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BREAKING DOWN 'RiskFree Rate Of Return'
In theory, the riskfree 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 riskfree rate.
In practice, however, the riskfree rate does not exist because even the safest investments carry a very small amount of risk. Thus, the interest rate on a threemonth U.S. Treasury bill is often used as the riskfree rate.
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RELATED FAQS

What does a high equity risk premium signify about a company's stock future?
A high equity risk premium signifies that a company's stock future is uncertain. Equity risk premium is the excess return ... Read Full Answer >> 
What nations other than the U.S. have riskfree interest rates?
Countries other than the United States that have riskfree interest rates are Canada, the European Union, Japan, the United ... Read Full Answer >> 
How is it possible for a rate to be entirely riskfree?
It is not possible for a rate to be entirely riskfree. The riskfree rate of return is a theoretical construct that underlies ... Read Full Answer >> 
How is the riskfree rate of interest used to calculate other types of interest rates ...
The riskfree rate for bonds is used for pricing the yield spread as the difference between the interest rate on a bond and ... Read Full Answer >> 
Where can I buy government bonds?
The type of bond determines where you can purchase it, so you need to decide which type of bond you would like to purchase ... Read Full Answer >> 
Are longterm U.S. government bonds riskfree?
For any debt obligation to be considered completely riskfree, investors must have full faith that the principal and interest ... Read Full Answer >>