Risk-Free Rate Of Return Definition
The return an investor can expect to receive on an asset with zero risk over a certain period. The risk-free rate of return exists in theory because every investment carries some amount of risk. In practice, the interest rate on a three-month U.S. Treasury bill is often used as the risk-free rate of return, as treasuries are considered the least risky investments. If an asset is subject to higher risk, investors expect the risk-free rate of return plus a premium for the risk.