Finance glossary
Risk-Free Rate
Definition
The theoretical return on an investment with zero risk.
The risk-free rate is the return on a perfectly safe asset, typically proxied by short-term U.S. Treasury bills. It is the baseline against which risky returns are measured and a key input to models like CAPM and discounted cash flow valuation.
In a sentence
Analysts used the 3-month Treasury yield as the risk-free rate in their model.
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