The risk-free rate is
the rate of return on a riskless investment
The risk-free rate refers to the theoretical return on an investment with zero risk. In practice, the risk-free rate is often considered to be the yield on an investment in a government bond or another investment that has a very low risk of default. The risk-free rate is used as a benchmark to compare the return on other investment opportunities. For example, if an investment opportunity promises a higher return than the risk-free rate, it is assumed to carry additional risk and may not be suitable for risk-averse investors. The risk-free rate can also be used as a factor in financial models that estimate the proper discount rate for investment opportunities or the expected return on a portfolio of investments.
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