risk-free interest rate


The rate of return that can be obtained by investing in financial instruments which have minimal likelihood of defaulting. As such a risk-free rate only exists in theory, it can be implemented practically by using government treasury bonds as the benchmark. These bonds still have a very small amount of risk but the likelihood of the government defaulting is very low.

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You should try and find a risk-free interest rate that will offer you greater flexibility during the time you have it.

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The vast difference between the risk-free interest rate and other riskier bond rates lead many economists to believe that something was wrong in 2008.

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When setting a financial goal for yourself, such as planning for a vacation or saving for college, It is in your best interest to look for investments that have a risk-free interest rate, such as a treasury bond.

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risk-free asset hedged portfolio