risk-free interest rate
Definition
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.
Use this term in a sentence
“ You should try and find a risk-free interest rate that will offer you greater flexibility during the time you have it. ”
“ 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. ”
“ 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. ”
