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What is the meaning of Risk Free Interest Rate?

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Is there such thing exist, if yes then why it is risk free?

posted Mar 10, 2015 by Salil Agrawal

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1 Answer

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Best answer

Risk-free rate means the interest that an investor would expect from an absolutely risk-free investment over a given period of time.

Since the risk free rate can be obtained with no risk, any other investment will have additional risk.

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.

answer Mar 10, 2015 by Amit Kumar Pandey
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