Risk free rate of return

The theoretical rate of return which can be earned on hypothetical investments which are considered to be risk-free for modelling purposes.

Historically, the rates of return on certain types of domestic central government debt were considered to be a close enough proxy for such hypothetical risk-free investments.

In the modern era, domestic central government debt is no longer considered to be risk-free for this purpose, nor for a number of other purposes for which it was historically considered to be risk-free.

See also

• Capital asset pricing model
• Credit spread
• Gilts
• Interest rate risk