Portfolio Theory

Risk-Free Rate

Definition

What is Risk-Free Rate?

The return assumed to be available from an investment with negligible default risk over a matching period.

Example in practice

Analysts often use a short-term government yield as a practical risk-free proxy.

Keep learning

A model linking expected return to the risk-free rate, market risk premium, and an asset's beta.

A line showing the CAPM relationship between expected return and beta.

The set of portfolios offering the highest expected return for each level of risk under stated assumptions.

A fraud that pays earlier participants using money from newer participants rather than genuine investment profits.

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