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HandWiki. Risk-Free Interest Rate. Encyclopedia. Available online: https://encyclopedia.pub/entry/30786 (accessed on 20 October 2026).
HandWiki. Risk-Free Interest Rate. Encyclopedia. Available at: https://encyclopedia.pub/entry/30786. Accessed October 20, 2026.
HandWiki. "Risk-Free Interest Rate" Encyclopedia, https://encyclopedia.pub/entry/30786 (accessed October 20, 2026).
HandWiki. (2022, October 24). Risk-Free Interest Rate. In Encyclopedia. https://encyclopedia.pub/entry/30786
HandWiki. "Risk-Free Interest Rate." Encyclopedia. Web. 24 October, 2022.
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The risk-free interest rate is the rate of return of a hypothetical investment with scheduled payment(s) over a fixed period of time that is assumed to meet all payment obligations. Since the risk-free rate can be obtained with no risk, any other investment having some risk will have to have a higher rate of return in order to induce any investors to hold it. In practice, to infer the risk-free interest rate in a particular currency, market participants often choose the yield to maturity on a risk-free bond issued by a government of the same currency whose risks of default are so low as to be negligible. For example, the rate of return on T-bills is sometimes seen as the risk-free rate of return in US dollars.
risk-free rate
rate of return
interest rate
References
- Malcolm Kemp, Market Consistency: Model Calibration in Imperfect Markets, chapter 5
- Tobin, Money, Credit and Capital, page 16
- Feldhütter and David Lando, Decomposing Swap Spreads (2007)
- Stock Prices and Social Dynamics, Brooking Papers on Economic Activity (1984), pages 457-511
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