Risk free rate of return

From ACT Wiki
Jump to navigationJump to search


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

The Capital asset pricing model (CAPM) incorporates this type of risk-free rate.

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.

Interest rate benchmarks

The term 'risk-free rates' (RFRs) is also used in the context of interest rate benchmark rates.

See also