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.
INVESTOPEDIA EXPLAINS '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.
VIDEO

Nominal Rate Of Return
The amount of money generated by an investment before expenses ... 
Equity Risk Premium
The excess return that an individual stock or the overall stock ... 
Equity Premium Puzzle  EPP
An phenomenon that describes the anomalously higher historical ... 
Government Security
A bond (or debt obligation) issued by a government authority, ... 
Total Bond Fund
A mutual fund or exchangetraded fund that seeks to replicate ... 
Return On RiskAdjusted Capital ...
A rate of return used in financial analysis, whereby riskier ...

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 >>

Investing
RiskFree Rate of Return
The riskfree rate of return is 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 ... 
Bonds & Fixed Income
Understanding The Sharpe Ratio
This simple ratio will tell you how much that extra return is really worth. 
Options & Futures
How Risk Free Is The RiskFree Rate Of Return?
This rate is rarely questioned  unless the economy falls into disarray. 
Investing Basics
How Interest Rates Affect The Stock Market
Whether you're buying lunch, a home or a stock, you're influenced by interest rates. 
Bonds & Fixed Income
Find The Highest Returns With The Sharpe Ratio
Learn how to follow the efficient frontier to increase your chances of successful investing. 
Forex Education
How To Calculate Required Rate Of Return
The required rate of return is used by investors and corporations to evaluate investments. Find out how to calculate it. 
Investing Basics
What Investors Should Know About Interest Rates
Understanding interest rates helps you answer the fundamental question of where to put your money. 
Fundamental Analysis
Catch On To The CCAPM
The consumption capital asset pricing model smoothes over some of CAPM's weaknesses to make sense of risk aversion. 
Options & Futures
Employee Stock Options (ESO)
Employee stock options are a form of equity compensation granted by companies to their employees and executives. 
Fundamental Analysis
Understanding the Profitability Index
The profitability index (PI) is a modification of the net present value method of assessing an investment’s attractiveness.